In retrospect, shareholders had to know it was only a matter of time. After running into a public relations wall several weeks ago on the heels of news that a class-action lawsuit was being filed against Fitbit Inc (FIT) because its heart-rate monitoring watches were dangerously inaccurate, Fitbit stock was down a little more than 4% Tuesday following news that credible research has proven the devices don’t work as well as touted.
Odds are good this evidence will be plenty convincing in a courtroom.
How did the Fitbit story turn from so good to so bad so fast? Moreover, what now?
FIT Class Action Suit Amended
If the news seems vaguely familiar, it may be because the alarming reality and subsequent lawsuit first materialized back in January. The ballyhooed Charge HR and Surge watches, which were billed as tools that can keep tabs on the wearer’s pulse, were found wanting.
The complaint didn’t offer much in the way of verified or quantified numbers, but was founded by enough qualitative, subjective data to claim “Unfortunately, the PurePulse Trackers do not work, and their heart rate readings are wildly inaccurate.”
The company quickly countered, pointing out at the time”… it’s also important to note that Fitbit trackers are designed to provide meaningful data to our users to help them reach their health and fitness goals, and are not intended to be scientific or medical devices.”
At a price of between $150 and $250 a pop though, consumers — or at least some consumers’ lawyers — say they should have functioned at least considerably more like an approved medical device and less like a toy.
Fast forward to last week.
On Thursday, an amended version of the complaint was filed following a more scientific review that ended up confirming what the initial complaint suggested.
The study was done by California State Polytechnic University, Pomona researchers. The test pool included 43 healthy adults, who were outfitted with Fitbit’s Surge watches as well as electrocardiogram (ECG) devises, and then began a variety of exercises.
The disparity between the two pulse meters was as high as 20 beats per minute … enough to mean the difference between a good workout and a heart attack for some individuals.
Fitbit again countered, explaining of the study “It was paid for by plaintiffs’ lawyers who are suing Fitbit, and was conducted with a consumer-grade electrocardiogram – not a true clinical device, as implied by the plaintiffs’ lawyers. Furthermore, there is no evidence the device used in the purported ‘study’ was tested for accuracy.”
Fitbit’s response is a worthy talking point within the debate, including when that debate happens in a courtroom. Even a consumer-grade electrocardiogram, though, is presumably more accurate than the unproven PurePulse technology that powers the pulse-checking aspect of the Surge and HR watches.
And to the extent the California State Polytechnic University study isn’t valid, an independent similar study done at Ball State University confirmed in February that the readings done by Fitbit heart rate monitors were sometimes off by as much as 30 beats per minute.
That, coupled with the more recent results from the California State Polytechnic University study in addition to all the other studies done and yet to be done is what a lawyer might call a preponderance of evidence … a valid “where there’s smoke there’s fire” argument.
It doesn’t look good for Fitbit, and by extension, it doesn’t look good for FIT stock
Bottom Line for Fitbit Stock
Though it has been glossed over by the media so far, this case isn’t so much about a poorly functioning device. Most reasonable consumers would arguably understand that a watch they bought at a department store or online that they affix themselves and move around in can’t be perfectly accurate. Fitbit could defend itself on those grounds.
Rather, this class action suit claims fraudulent marketing practices. Such cases not only involve restitution, but they also often call for stiff penalties. If this suit moves into the courtroom, it could get particularly expensive.
It’s tough to own Fitbit stock knowing a sizable financial burden could be looming … particularly without knowing how what the final bill may be. And even if it does get past the class action suit, the bigger question remains: Can it actually make an affordable heart-rate monitoring device consumers trust?
Trying to do the impossible is rarely a good business plan.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.
