It has been a rough month for Fitbit Inc (FIT). Fitbit stock’s price has fallen by more than 9% this month, and last week Apple Inc.’s (AAPL) World Wide Developer’s conference reignited fears about the fitness band’s staying power as the wearables market gets more crowded.
However, with Fitbit stock trading below $13, long-term investors would be wise to get on board as the market’s worries about the Fitbit’s ability to compete are largely overdone.
One of the biggest anchors weighing down FIT stock’s price is the Apple watch. Every time AAPL releases details about upcoming software updates for its wearable device, Fitbit stock is slammed.
Investors are worried that Apple will steal market share with a device that does more, but FIT has proven that the firm’s wristbands are catering to an entirely different audience.
Fitbit Stock Won’t Be Beaten So Easily
While it’s true that the Apple Watch has more functionality than any of Fitbit’s devices, the lower price point, more streamlined design and clearer focus on fitness make FIT a top choice for consumers looking for an activity tracker.
Even though Apple plans to add several new fitness-focused features to watchOS 3, it is unlikely take away from Fitbit’s customer base because most of them are not in the market for a smartwatch — so Apple’s premium price isn’t justified.
In fact, research shows that Americans are more likely to use an activity tracker over a smartwatch. A study by Kantar Worldpanel showed that one in 10 U.S. consumers used either a smartwatch or a fitness band, and three out of four of those “wrist wearables” were fitness bands.
FIT is the market leader in this arena, accounting for 61.7% of wrist wearable owners in the U.S. Apple, on the other hand, makes up just 6.8% of that market. The study also showed that smartwatches are disrupting the traditional timepiece market rather than the fitness band space.
Fitbit stock is also poised to make gains in the coming quarters as the company is expecting to see revenue increase to $2.5 or $2.6 billion this year. FIT’s first-quarter results showed that revenue was up 50 percent from last year, with 4.8 million devices sold. Fitbit’s newest additions, the Blaze and Alta, were responsible for almost half of the firm’s first-quarter revenue, proving that the company is still gaining momentum despite growing competition.
Perhaps the most telling figure from FIT’s first-quarter earnings was the company’s user engagement. FIT CEO James Park revealed that 72% of the firm’s 18 million new users stayed active through the end of 2015. Fitbit’s new devices also drove re-engagement, with 20% of those who bought a Blaze or Alta band reactivating previously abandoned accounts.
The only grey cloud hanging over Fitbit stock is the firm’s rising costs. The first-quarter results showed that research and development spending has ballooned and sales and marketing costs also skyrocketed. In order to improve margins, FIT will need to get its spending under control.
FIT is certainly up against some tough competition in the activity tracking market, and with the industry still so new, it is unclear how the wearables market will develop.
However, FIT appears to be thriving as an industry leader in the fitness bands segment, where strong demand has continued despite the introduction of feature-rich smartwatches.
Market worries have driven Fitbit stock lower in recent weeks, but for those who believe that demand for fitness trackers won’t be wiped out anytime soon, the falling share price makes for a good entry point.
As of this writing, Laura Hoy was long AAPL.
