Owlet’s Q1 Surge: Can Strong Earnings Beat the Odds in Digital Health?

The digital health sector is a battleground of innovation and skepticism, where companies must prove their ability to turn data into profit. Owlet, Inc. (NYSE: OWLT), a leader in infant health monitoring, has just delivered its strongest quarterly revenue growth in years—surpassing Wall Street’s expectations by a wide margin. But can this momentum translate into sustained value for investors?

A Quarter of Defying Expectations

Owlet’s Q1 2025 results were a stark contrast to its recent history of earnings misses. The company reported $21.1 million in revenue, a 43.1% year-over-year jump that crushed analyst forecasts of $18.14 million by $2.96 million (or 16.3%). This performance was fueled by surging sales of its flagship Dream Sock wearable infant monitor and the Owlet Cam, alongside a 48,000-strong subscriber base for its Owlet360 subscription service.

The earnings surprise was equally dramatic. While analysts had anticipated a Non-GAAP net loss of $0.24 per share, Owlet delivered a narrower loss of $0.07 per share, beating estimates by $0.17—a 70.8% improvement. CEO Kurt Workman attributed this to “operational efficiencies, reduced return rates, and strategic cost optimizations,” marking a turning point for a company once criticized for high return rates and pricing pressures.

The Financial Engine Under the Hood

The revenue surge wasn’t just about selling more devices. Owlet’s gross margin expanded to 53.7% in Q1 2025, up 930 basis points from 44.4% a year earlier. This was driven by a better product mix, cost reductions, and the shift toward recurring revenue via its subscription model. Even as operating expenses rose to $14.0 million (up from $12.3 million in Q1 2024), the company narrowed its operating loss to $2.7 million from $5.7 million—a sign of improving unit economics.

The financial health is further underscored by Owlet’s updated full-year 2025 guidance: revenue of $91–$95 million (17–22% growth) and a push for adjusted EBITDA profitability. If achieved, this would mark a major milestone for a company that has historically prioritized growth over margins.

Challenges Lurk in the Shadows

Despite the Q1 win, Owlet’s path remains fraught with obstacles. The company continues to operate at a GAAP net loss, and its Non-GAAP EPS for 2025 is still projected to be -$0.76, reflecting ongoing investments in R&D, international expansion, and legal costs. Meanwhile, the infant health market is crowded, with competitors like Fisher-Price and Withings offering similar smart monitors.

Investors also face valuation questions. While analysts’ average 12-month price target of $10.17 implies a 154.8% upside from the May 8 closing price of $3.99, GuruFocus’ conservative $4.36 target highlights skepticism about scalability. The stock’s volatility—rising 9.3% post-Q4 results but dipping in extended trading after Q1—suggests investors are still weighing risks against growth.

The Bottom Line: A Risky, but Strategic Bet

Owlet’s Q1 results are a critical inflection point. The company has shown it can grow revenue and margins simultaneously, but profitability remains elusive. The stock’s current valuation is a gamble; it hinges on whether Owlet can:
1. Sustain growth: The $91M–$95M guidance requires maintaining momentum in a saturated market.
2. Control costs: Operating expenses rose 14% year-over-year—this must be curbed without sacrificing innovation.
3. Expand profitably: The path to EBITDA breakeven demands discipline in pricing and operational leverage.

For bulls, Owlet’s $21.1M revenue beat, 53.7% gross margin, and a $10.17 analyst target offer hope. For bears, the $0.76 Non-GAAP annual loss and execution risks loom large.

In conclusion, Owlet’s Q1 performance is a cautiously optimistic signal for investors willing to bet on its long-term vision. If the company can convert its data-driven insights into recurring revenue and reduce losses, the $15 price target from some analysts could materialize. However, with a stock price still reeling from past disappointments, this is a high-risk, high-reward play that demands close scrutiny of future quarters. The verdict? Owlet is worth watching—but not yet worth doubling down on.