When Fitbit Inc (FIT) announced the launch of a smartwatch, the Blaze, some thought it could be successful, but also knew it would be tough to compete against the likes of Apple Inc. (AAPL), Samsung (SSNLF) and Alphabet Inc‘s (GOOG, GOOGL) Android Wear.
Up until this point, Fitbit has dominated the basic segment of the wearables market with its fitness trackers, but smart wearables enter the company into a new space with faster growth and higher-priced merchandise.
In other words, success in the smart wearables arena could be a game changer for Fibit stock.
And based on what the company recently told us, FIT stock is about to reverse its bad fortunes.
According to FIT, the company has already shipped more than one million Blaze devices in its first month of retail availability. That makes the Blaze No. 1 in both the smartwatch and heart monitor categories on Amazon.com, and also well exceeds the expectations of any analyst on the street, most of whom expected a rather slow launch due to limited marketing and advertising from Fitbit.
As a result, one might conclude that the strong performance is from word of mouth, and potentially pre-existing Fitbit owners who upgraded to the smart technology. Currently, there are 1,224 reviews on Amazon, with 83% giving it a 4- or 5-star rating.
What Does 1 Million Shipments Mean for FIT Stock?
Fitbit stock is currently higher by over 10% in response to this news. FIT shares are still lower by 50% this year despite expectations for 31.5% revenue growth in 2016 and a stock that is trading at just 10x FY2017 EPS.
That said, Fitbit’s Q1 guidance at a midpoint of $430 million in revenue implies growth of 27.9%, or nearly $100 million greater than the same period last year.
Some analysts and Fitbit shorts may conclude that the $100 million increase in sales the company forecasted figures strong Blaze and Alta sales, which are two of the company’s newest products. However, I argue that the success with Blaze and Alta is completely unexpected, and becomes a massive short- and long-term catalyst for Fitbit stock.
One million Blaze sales at $200 equal revenue of $200 million from this single product. Keep in mind, that’s one month only! Then, Fitbit also disclosed that its newly launched Alta also surpassed one million shipments at $129 per, thereby creating $129 million in revenue. Combined, that’s $329 million, and once more, that’s from one month only!
Then, you have to figure Fitbit’s existing product line of basic wearables. Nearly 80% of Fitbit’s Q4 revenue came from newer products like the Charge, Charge HR and Surge. Therefore, one must conclude that Fitbit figured on most of its revenue being created from these noted products during the first quarter, especially with low expectations and limited availability from the Alta and Blaze during Q1.
When you add it all up, it is easy to see how Q1 revenue could be $100 million greater than analysts currently expect. And more importantly, guidance should well exceed the company’s previously outlook. With 21.4 million shipments last year and revenue of $1.86 billion, Fitbit creates a little more than $85 per device shipped. However, the Blaze ($199) and the Alta ($129) are far more expensive products, and will quickly boost its average selling price, and its revenue.
Fitbit Stock Gains to Follow
I explained earlier this year that if Fitbit could ship just three million Blaze or smart devices annually, it would create an additional $600 million in annual revenue.
At the time, I was just hoping FIT could create this additional revenue by 2019. Never did I expect it would likely surpass this mark in 2016. After all, if Fitbit has already surpassed one million Blaze shipments, in just one month, just think of what it will ship this year.
With over 31 million shares short, and Fitbit stock already cheap, the scene has been set for FIT stock to reverse and trade significantly higher in the weeks ahead, and for Fitbit to both beat Q1 expectations and raise guidance.
True, FIT stock has traded lower when it should have risen for several months now, but given these new developments, and its valuation, it is tough to imagine Fitbit stock is going anywhere but higher.
As of this writing, Brian Nichols owns shares of FIT stock.
