Nov 3, 2015 ยท 4 minutes

This must be what it feels like to score a personal best on a run only to have someone throw ice water over your head.

Fitbit delivered blowout earnings, vindicating for now the bulls who have been battling a tide of bearish sentiment. And yet somehow the stock ended up tumbling as much as 10 percent after the announcement.

The good news: Fitbit earned 24 cents a share, more than double the ten cents analysts had been expecting. Revenue rose 168 percent to $409 million, nearly $60 million more than expected. If Fitbit, as critics charge, is a fad, it's far from fading. Sales in Macy's, in corporate wellness programs and most of all in overseas markets are rising. International sales rose fourfold in the quarter.

The bad news for investors (well, it's bad depending on what kind of investor you are): Fitbit is selling 21 million more shares. That's after the 36 million shares Fitbit sold in its IPO four and a half months ago. Two-thirds of proceeds from the new offering will go not to Fitbit but to insiders like founders James Park and Eric Friedman.

For insiders who can shares sell in the offering, this could be a good thing. Most companies wait until six months after an IPO before the traditional lockup period expires, allowing insiders to sell shares in the market. The catch is, many companies that go public see their stocks start to drift down only a few months after their IPOs as the initial enthusiasm wanes and investors have a chance to study their earnings trajectories.

Park and Friedman will be able to sell up to 10 percent of their holdings in the secondary offering. And another group of employees and consultants will be given an early expiration of their lockup period on Wednesday, more than a month before the traditional six-month wait. If the market moves lower in coming weeks, they might be glad to have had the chance to cash in shares early.

But for other investors, these moves may not be as welcome. The sales of new shares in the secondary offering and the early lockup expiration will make a lot of new shares available for trading in the public stock market. That's not necessarily bad, but it could affect the supply-and-demand of Fitbit shares enough to make it harder for new demand to push up the stock's price.

So far, Fitbit's price has performed well, despite warnings about competition from Apple and Xiaomi as well as uncertainty over how long fitness trackers will remain hot sellers. Fitbit went public at $20 a share in June and rose as high as $51.90 in August. The stock was trading around $40 before news of its earnings and secondary offering, not a bad return for a tech IPO in the class of 2015.

In after-hours trading, Fitbit fell as much as 10 percent before rebounding a bit to $37.46, an 8-percent decline from its official close Monday. There are a couple reasons to think this may not be as bad as it looks. First, Fitbit is a volatile stock, so the decline late Monday takes the stock back to levels it saw only a week ago.

Also, that volatility has been exacerbated by a substantial number of shares held by short sellers. Fitbit's short interest has risen from 3.5 million in late June to 17.5 million in mid-October, equal to nearly eight days of average trading volume. Apple, by contrast, has a short interest equal to 2 days of trading, a more typical ratio for tech stocks.

Fitbit is far from being in trouble. Its revenue in the first nine months of 2015 tripled and it has been profitable for some time. One warning sign is that its operating margins are deteriorating – to 16 percent in the most recent quarter from 28 percent a year earlier. That feeds into the debate over how long Fitbit can keep up its torrid growth: Can its early entry into a growing market cement its strong lead, or will it watch its share erode to rivals?

That questions explains why investors didn't react well to the secondary sale. Here Fitbit is explaining why it's going to be successful for the long haul, and then acting as if it's scurrying to raise money (and cash out insiders) while it can. Fitbit has $575 in marketable securities and its business is generating ample cash. The offering will bring it another $250 million at the stock's current valuation. Why the urgency to raise that money?

One possible answer is acquisitions. Asked about its M&A plans on the earnings call, Park said that "we have been evaluating a lot of opportunities” but won't make what he called hasty decisions. “If it make sense like it has in the past with FitStar, with a great fit with the company's strategy, we’ll move very quickly,” Park said.

Another possibility is that Fitbit, like many others in tech these days, can read the writing on the wall: Techpocalypse is coming. A number of tech IPOs, including Square and Pivotal, are heading for the public market. As private funding dries up others are sure to follow. Companies at the front of that line will likely get a friendlier welcome.

Just don't cut in that line with a hasty secondary offering. We're looking at you, Fitbit.