A few years ago, activity trackers and wearable devices were all the rage. It was in that environment that leading activity tracker and smart watch producer Fitbit Inc (NYSE:FIT) was born … at least as a publicly traded company. But Fitbit stock is no unicorn — it’s down more than 60% from its IPO price.
The problem is, Fitbit was and still remains a one-trick pony. And while activity trackers are doing better than smartwatches in terms of the wearables market, they still aren’t catching on like wildfire with the vast bulk of consumers. Recent FIT stock downgrades and questions about Fitbit’s ability to survive as a standalone company only underscore that problem.
And its recent acquisition of rival Pebble could be seen as a move made out of desperation.
In the end, the hype surrounding Fitbit stock might never truly be realized.
Activity Trackers Are Great, FIT Stock Isn’t.
Fitbit and action-camera maker GoPro Inc (NASDAQ:GPRO) have a lot in common. But first and foremost is that both their futures are heavily tethered to just one type of product. That’s a problem when your product is being weighed as a passing fad.
Search “wearable device market growth” and the projections are immense. The biggest report that I found has the sector hitting $34 billion by the time the calendar rolls over to 2020. So the outlook is great … but the problem is, reality doesn’t seem to mesh with estimates.
According to tech-sector data provider IDC’s latest Worldwide Quarterly Wearable Device report, the overall wearables market grew just 3.1% in the third quarter of 2016. That’s down from a 26% growth rate achieved in Q2 and far off the 67% mark from Q1.
It’s certainly not what people had in mind when they propelled Fitbit stock higher shortly after it hit the public markets. Clearly, it shows a deceleration in activity tracker growth.
Analysts have begun to nod toward the idea that wearable tech is slowing. Both Deutsche Bank and Mizuho Securities recently cut their price targets for Fitbit stock in half based on falling sales and consumer demand.
So … what’s the problem?
For the most part, those who want these devices already have them. Fitbit seems to be succumbing to this issue, as it cut its guidance figures for the fourth quarter. The struggle, then, for FIT and other activity tracker makers is getting the word out to people who aren’t already interested.
To that end, Fitbit has tried to launch lower-price models to get its products in the hands of on-the-fence consumers. The idea: Get them hooked, then upgrade them later.
At the same time, FIT has made a play for smartwatch pioneer Pebble. While overall smartwatch sales are doing worse than basic activity trackers, the Pebble acquisition does add some important intellectual property under Fitbit’s umbrella. So the company could use that to launch more products down the road.
Fitbit Is Just Kicking the Can
So, if you’re an investor in Fitbit stock, how long do you wait until these efforts pay off? (If they ever pay off.)
The upshot of most other wearable deice markers is that they have diverse product lines that help them navigate and wait out the sectors issues. Garmin Ltd. (NASDAQ: GRMN) still makes a ton more money from its GPS and navigation products than it does from its Vivo line of fitness bands. Apple Inc (NASDAQ:AAPL) is … OK, we all know what Apple does.
The key is that their wide range of tech consumer products allows them to navigate what is turning into simply a hobby business.
Fitbit doesn’t have that luxury. Yes, FIT is debt-free, which goes a long way toward simply surviving. Fitbit isn’t a bankruptcy concern at all right now.
Still, lower and lower guidance in the face of dwindling consumer demand won’t exactly draw new shareholders. FIT stock needs a major catalyst (and the Pebble acquisition isn’t it).
If you are a believer in the potential of wearable technology, you’re not necessarily wrong. But you might be better off investing in another company to express that belief.
Fitbit stock is being tossed into the dustbin. Don’t stick around.
As of this writing, Aaron Levitt did not hold a position in any of the aforementioned securities.
