Words like “exciting” and “Fitbit stock” have not been compatible since Fitbit Inc‘s (NYSE:FIT) IPO last year. The company has done everything right, answering its critics, yet FIT can’t seem to catch a break.
It almost seems like the more that Fitbit management beats expectations and raises guidance, the louder criticisms become. Well, explainable stock performance can only happen so long before logic starts to prevail. In the case of Fitbit stock, it is finally starting to creep higher.
With the company’s vision becoming clear, the end of 2016 is setting up to be quite special for FIT stock owners.
Criticism for FIT Stock
Fitbit has had mind-boggling growth. Its IPO came the same year that Apple Inc. (NASDAQ:AAPL) and Samsung (OTCMKTS:SSNLF) entered the wearables market. While Fitbit only operated in the basic wearables market, it still finished 2015 as the No.1 wearables company.
Its first smartwatch, the Blaze, went on to sell millions of units and be a commercial success despite not using Android or iOS operating systems. In the world of connected and smart hardware, Fitbit is one of the only companies we have seen to have success using an operating system that’s not iOS or Android.
Despite all of this success, the big knock against Fitbit and FIT stock is that the company does not have a recurring revenue stream. It’s all hardware and one-time sales — Wall Street does not like that. It means that investors are always looking ahead, and wondering how long Fitbit can hold off tech juggernauts. That’s why I have said repeatedly that Fitbit needs to launch services within its network, and create an ecosystem.
Fitbit: The Vision Becomes Clear
However, what Fitbit is doing might be even better. On Monday, the company announced a slew of new features and designs to both its best-selling Alta and Blaze, along with product refreshes for two other units.
Furthermore, the company is partnering with leading fashion brands like Public School, Vera Wang, Kohl’s Corporation (NYSE:KSS), and Tory Burch to deliver accessory options. This gives those specific brands an incentive to showcase Fitbit products. Furthermore, it allows users to personalize their products.
Speaking of which, Fitbit is rolling out new software that includes five new clock faces, something I had previously suggested. This gives an added layer for customizing products, which seems to be Fitbit’s preferred direction.
It is becoming quite clear that the second segment that Fitbit needed is accessories. The company has launched countless bands to customize its wearables and now has brand-specific accessories along with new clock faces. Hence, Fitbit is making its wearables more stylish, and by doing so, it creates an opportunity to up-sell the millions of devices it has sold over the last few years.
Finally, Fitbit’s new software update will allow users to customize the notifications they receive from apps like Facebook, Gmail, Instagram, Skype, Snapchat and WhatsApp, among others. Thus, Fitbit’s Blaze just became a lot more like Apple Watch, but still cheaper and still easier to use.
As previously reported, Fitbit CEO James Park knows better than anyone what users want with their smartwatch. These notifications are yet one more example.
Park realizes that a watch is too small for interactive apps, but is perfect for notifications since most consumers carry their watches with them, but don’t always have their smart watch in hand. Ultimately, embracing notifications over apps is yet one more decision that should bode well for Fitbit sales moving forward.
Bottom Line on Fitbit Stock
All things considered, I still think Fitbit needs to do more around services and software to create recurring revenue streams.
However, I also believe that building software around notifications and custom hardware is the way to go for a company that’s competing against iOS and Android. These moves make sense, and with Fibit creating a second segment in accessories and now refreshing software and legacy hardware, there are reasons to be optimistic about Fitbit stock in the final months of 2016.
Remember, Fitbit was king of the holidays last year, and really has not missed a beat since. FIT is now trading at just 10x fiscal year 2017 earnings-per-share and has the potential to blow past its own expectations with so many new accessories, product refreshes, and the likelihood for Blaze and Alta upgrades ahead of the holidays.
With nearly 40% of Fitbit stock’s float being short, and with it so cheap, there is a high likelihood that FIT stock soars to end 2016.
As of this writing, Brian Nichols owns Fitbit and Apple.
