Fitbit reported quarterly earnings that beat analysts' expectations on Monday. But shares plunged — and continued to drop Tuesday — after the company announced that "certain stockholders" are proposing to sell 14 million shares in a follow-up public offering.
The wearables company reported third-quarter earnings of 24 cents per share on $409 million in revenue. Wall Street had expected the company to deliver 10 cents per share on $352 million in revenue, according to consensus estimates from Thomson Reuters.
Shares, however, fell more than 8 percent in extended-hours trade on Monday, and were down more than 6 percent Tuesday morning.
Fitbit said on Monday that it intends to do a follow-on public offering of a proposed 7 million shares of its common stock, while certain shareholders were proposing another 14 million shares. The company also agreed to an early release of lockup restrictions on about 10 percent of its outstanding shares.
The company said the release of the lockup of 2.3 million shares would be effective Nov. 4.
"There's going to be a lockup expiration in mid-December anyway, so the plan for this offering that we just announced is to provide a really orderly and soft landing as we transition from venture capital shareholders to public investors," CEO James Park told CNBC's "Squawk on the Street" Tuesday.
"The benefits of the offering is that the largest shareholders in the company are going to be re-locked up for another 90 days, so I think that is a key point," he added.
"The principal purposes of the proposed offering are to increase Fitbit's financial flexibility, obtain additional capital, facilitate an orderly distribution of shares for the selling stockholders, and increase Fitbit's public float," the company said in a statement.
Fitbit said it will use the cash as "additional working capital" for marketing, research and capital expenditures.
"We really think it's more predicated on the lockup," Robert Peck, Suntrust Robinson Internet analyst, said Monday on CNBC's "Closing Bell." He said the question will now be whether the capital gained from the end of the lockup will be used to accelerate growth.
"The No. 1 thing is going to be new products," Peck said. "What are the new products that are coming? How can we see that differentiated from the current products? How are you responding versus competition on both the low end as well as the high end?"
The company's revenue nearly tripled in the third quarter, helped by strong demand from markets outside the Americas.
Up to Monday's close, the stock had more than doubled in value since its debut on June 18.
— Reuters contributed to this report.
Disclosures: Bob Peck does not own shares of Fitbit. However, Fitbit is an investment banking client of Suntrust Robinson.