Research and development rises 162% in 2Q16
As we saw in the previous part of this series, revenues for Fitbit (FIT) rose 46.5% YoY (year-over-year) in 2Q16. Revenues have increased substantially over the last few quarters. Fitbit has placed a significant focus on its research and development (or R&D) spending.
It’s essential for technology product companies, including Apple (AAPL), Fitbit, and Garmin (GRMN), to invest heavily in product development in order to maintain market share. Fitbit’s expenditures in R&D for 2Q16 rose 162% to $79.9 million.
As you can see in graph below, Fitbit’s R&D expenses accounted for 13.7% of total revenues in 2Q13 and fell to 10.2% in 2Q14. In 2Q15, R&D expenses were 7.6%, and in 2Q16, they rose to 13.6%.
In 2Q16, net income declined 42.5% YoY to $29.5 million, primarily driven by the increase in R&D expenditures. The company’s sales and marketing expenditures also rose by 69.5% in 2Q16 to ~$118 million, up from ~$69.7 million in 2Q15.
R&D is important for Fitbit
The CEO (chief executive officer) of Fitbit, James Park, stated, “Following the accelerated investment strategy we announced for 2016, R&D headcount increased in Q2 although not as quickly as planned. We are focused on hiring the right people and are doing so in a disciplined way. As a result, some additional R&D hiring will continue in the second half of this year.”
Fitbit had earlier stated that its battery for devices with Pure Pulse heart rate technology can last up to five days, depending on usage and other factors. This was driven mainly by spending in R&D.