Fitbit Inc (NYSE:FIT) Earnings Model
Fitbit Modeling Approach
Revenue Modeling Approach: This model uses seasonal adjusted growth rates to project the total number of devices sold each quarter, then applies an average selling price per unit to arrive at total projected revenue.
Expense Modeling Approach: To estimate Cost of Revenue we use forecasts of Gross Margin percentage, and use ratios for each of the three operating expense line items: Research & Development, Sales & Marketing, and General & Administrative Expense. We use historic averages to estimate Interest & Other Income, and apply an effective tax rate to the future projected income to forecast the Provision for Income Tax.
Non-GAAP Adjustments: We project future Stock-Based Compensation (SBC) expense based on the historic ratio of SBC-to-Revenue, and allocated it between Cost of Goods Sold, and Operating Expense based on the allocation from the previous quarter. We then calculate the estimate tax impact of non-GAAP adjustments and book the result to non-GAAP Net Income.
Share Count Forecast: To forecast the future share count we calculate the historic change in share count, and apply similar changes in future periods.
Valuation Approach: We utilize a market multiple based valuation approach, specifically a Price-Earnings Multiple which we apply to the Next Twelve Month consensus EPS estimate, on an exCash basis.
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