My preconceived notion when putting this piece together was that demand for Fitbit Inc’s (NYSE:FIT) wearable fitness devices and accessories have peaked for good and that Fitbit stock, which was down sharply throughout most of 2016, had little investment appeal. Yet sales should be up this year, and FIT is optimistic for its sales levels during this all-important holiday season.
It also seems logical that consumers will eventually ditch wearable devices and turn to apps in their mobile devices.
In theory, Apple Inc. (NASDAQ:AAPL) should be able to put Fitbit out of business. Yet, there appears to be a select group that is interested in daily fitness, and athletes will likely always be interested in any information that helps them perform best and compete at a high level.
Is It All Bad News for Fitbit Stock?
FIT is also developing products for what it terms a healthcare ecosystem. In its words, it aims to “comprehensively monitor and effectively engage patients and consumers to drive better health outcomes.” Health and fitness tracking is likely to remain as important as ever, and could develop into a multi-billion dollar business for wearable device firms such as FIT.
Cash flow trends aren’t encouraging at all. In 2016 (through Sept. 30), Fitbit has been a net spender of its cash. By this period in 2015, it had generated $125.5 million in operating cash flow and only spent $17.7 million on capital expenditure. This year operating cash flow only totaled $40.2 million and capex had grown to $66.8 million, meaning negative free cash flow.
Yet management expects a healthy holiday season to bring in sales and profits and boost total cash on hand from about $672 million currently to between $900 million and $950 million by the end of the first quarter of 2017. This is when all the cash will come in from the holiday sales. That could bring total cash to nearly $4 per diluted share, or just over half of the current share price of $7.95 per share.
For the full year, sales are expected to grow as much as 26% to $2.3 billion. This is based off the 20 analysts currently following Fitbit stock. This group expects a modest 3% boost to $2.4 billion during 2017, but that is subject to change. Earnings estimates for FIT stock are at $0.58 per share this year, and $0.66 next year.
The problem with earnings is forecasts have come down significantly. Just 90 days ago, analysts expected earnings of well over $1 per share for each of the next two years. Based on the decreases, there is little surprise Fitbit stock has fallen from $30 per share to the single-digit level currently.
It remains to be seen if Apple, or Alphabet Inc’s (NASDAQ:GOOG, NASDAQ:GOOGL) Android platform will develop apps that increasingly compete with Fitbit’s wearable devices. It is clearly more convenient to carry one device over two, though highly active people don’t probably carry a phone while working out. Yet, more advanced data from wearable fitness devices could grow much more specialized than what a phone can provide.