Fitbit Inc (FIT) is one of the most hotly contested stocks among Wall Street and investors, and for good reason.
The naysayers are quick to point out that Fitbit stock will get crushed amid competitive pressures from industry titans like Apple Inc. (AAPL) and its smartwatch product. On the other hand, bulls will point to Fitbit’s market-leading status in an industry that is still in its infancy and poised to surge.
The bulls are in complete control, at least for the time being, as Fitbit stock has gained around 20% in a little over a month. However, over the past year, Fitbit stock tells a different story as shares have lost nearly half of its value.
Meanwhile, the bearish sentiment around Fitbit stock on Wall Street couldn’t be any clearer. According to Yahoo Finance, among the six most recent analyst recommendations, five are downgrades.
The latest bear report from Wall Street comes from BlueFin Research Partners’ John Donovan who essentially said that Fitbit stock is more or less doomed.
Fitbit stock is not doomed and Donovan’s thesis has two major flaws.
‘Enemies It Has Little Hope of Beating’
Donovan argued that Fitbit’s venture into the premium end of the fitness tracker/smartwatch category “places them in jeopardy of trying to compete against enemies it has little hope of beating.”
Donovan doesn’t have to mention Apple by name, but it is obvious who he is referring to. According to the analyst, Fitbit’s barely $3 billion market cap is David and Apple’s $600 billion market cap is the Goliath.
Thankfully for Fitbit stock investors, David emerges victorious in the end.
According to IDC’s data, Fitbit ended 2015 as “the undisputed worldwide leader of wearable devices” with a 29.5% market share. Apple came in second with a 15% market share.
Moreover, in the battle of David versus Goliath, Goliath’s own followers are supporting David. Fitbit was the number one app in Apple’s own App Store the Saturday after Christmas, leading Tech Insider to argue that Fitbit’s surge is “bad news” for the Apple Watch
In other words, Apple users, the supposed most loyal consumers to a particular brand, appear to be passing on the Apple Watch in favor of Fitbit devices.
‘8 Devices In The Sub 200 Space Is Confusing’
According to Donovan, Fitbit’s line of eight unique products in the sub-$200 price range is “confusing.”
Are Fitbit’s own consumers confused? If they were, then it would be natural for confusion to turn into frustration — which naturally leads the consumer to buy another brand. In Fitbit’s most recent quarter, the company sold 8.2 million devices. For the full fiscal year, the company added 18 million new registered device users.
Total year-end 2015 registered device users was 29 million.
Add to that another one million Blaze devices and one million Alta devices shipped within the first month of retail availability.
There is also another way to look at Fitbit’s “confusing” product line — different products at different price points for different target markets.
At $60, Fitbit’s entry-level Zip is the ideal product to conquer the “corporate wellness” segment.
As a first mover in the fitness space, Fitbit was quick to adapt when the industry shifted away from a clip-on design to a wrist-worn design. To keep up with the ever-changing trends, Fitbit introduced the Flex and Force.
The next generation of Fitbit products evolved with new consumer demands and add-on features such as heart rate monitoring, smartphone pairing and GPS capabilities.
By keeping older but proven product line models, Fitbit is able to attract a consumer who wants a fitness tracker without dishing out extra cash for the ability to change their smartphone music playlist.
What Donovan Missed About Fitbit Stock
One of Fitbit’s most underappreciated driver of growth is the fact that users can customize the fitness bands.
According to Trend Reports, “the importance of customization in a brand’s marketing strategy cannot be underestimated.”
Donovan’s thesis fails to recognize that Fitbit is one of the very few companies in the space that allows its customers to essentially become their own designer. To that extent, the company has a partnership with Tory Burch and recently announced a separate partnership with the renowned New York design house PUBLIC SCHOOL.
During Fitbit’s fourth-quarter conference call, management stated its additional products and accessories “will lend itself naturally to really justify more square footage” in the retail category.
Accessories, in addition to complementary product lines, such as a scale, are a lucrative vertical that Fitbit investors should be excited about.
Bottom Line: Ignore The Naysayers, Buy FIT Stock
Fitbit stock has been beaten up bad over the past year, but the company is in stronger shape today than it ever has been.
Wall Street analysts like Donovan are quick to point out perceived flaws in Fitbit’s direction and strategy at a time when the company is quietly working behind the scenes on new avenues of growth — such as an expansion to new markets like China and the conversion of device owners to premium, paid subscription models.
Not all of Wall Street is negative on Fitbit stock. Oppenheimer’s Andrew Uerkwitz perhaps said it best when he described Fitbit as being “best positioned to take advantage of two trends that are very early in their technology evolution, adoption curve, and understanding: real-time analytics and digital health.”
As of this writing, Jayson Derrick did not hold a position in any of the aforementioned securities.
