Kudos to Fitbit Inc (NYSE:FIT) for taking action — any action — as a means of rekindling a quickly-deteriorating business and quelling the free fall FIT stock appears unable to escape. Far too many companies would simply opt to do more of the same, unwilling to admit the organization’s wheels were falling off.
On the other hand, not all actions are effective, and the one Fitbit is now taking seems more than a little bit impotent. That is, the mission to develop an online “community” of Fitbit users sounds great on the surface, but is a bit presumptuous. Is a wrist-worn activity tracker really the foundation for Internet-based friendships?
When all is said and done, Fitbit is still unraveling simply because the devices don’t compel enough consumers. The implosion of FIT is merely a reflection of that increasingly-harsh reality.
Losing Interest
All-things-tech website Digital Trends may have described it best, calling Fitbit’s new social experience a “mini-Facebook for your fitness tracker.” Members can share stories, get tips from experts, and communicate with other members about their related journey toward a healthier lifestyle. Users interface with the device’s smartphone app to enjoy the enhanced experience.
It’s a clever step forward, to be sure. It can’t induce newcomers into making a purchase, though, as not owning a Fitbit device precludes a potential member from joining such a group.
The new app also may, or may not, radically change the even bigger headwind for Fitbit and FIT stock. That is, far too many people stop using them shortly after acquiring them.
Take any numerical estimate with a grain of salt. On the other hand, when several estimates all, more or less, say the same thing, there’s likely something to it. And, the dire numbers for Fitbit are 15% of users abandon their fitness tracker after 30 days of use, and 42% of users stop using the device after six months. In time, half shelf them for good.
That’s a pretty steep drop-off rate for a technology that most owners, at one point, considered a must-have. Where it really hurts, though, is the word-of-mouth advertising front, where most sales are ultimately made. If current owners aren’t jazzed about their device, they’re certainly not going to encourage others to buy one.
The addition of a social component to the app isn’t likely to make Fitbit devices any stickier or more marketable, particularly now that consumers are starting to experience social media fatigue.
The really curious, telling part about the high abandon rate? After quitting, former users either found no difference in how they live their lives, or were glad to have one less thing to manage online. Fitbit wearables were supposed to address both of those matters.
Red Flags All Around
It’s not as if we haven’t seen empirical evidence of the slowing interest — and even a growing disinterest — in Fitbit devices.
One piece of evidence is the disappointing Q4 revenue outlook. At one point expected to drive $985 million worth of business for the period ending in January, Fitbit cautioned FIT stock holders in November that it only expected to generate $725 million-$750 million in revenue during the all-important holiday quarter. The outlook is barely above the year-ago tally and would extend a developing trend of ever-weakening results.
Underscoring that weakness was another report from Cleveland Research, suggesting Fitbit’s manufacturers altogether halted production in the middle of December as inventory started to unexpectedly pile up. Pacific Crest chimed in mid-December as well, saying its channel checks indicated 18 days worth of inventory were sitting on shelves, rather than a healthier 5-10 days of inventory. In the meantime, Wedbush Securities analyst Nick McKay opined that, in the shadow of lackluster demand, Fitbit has cancelled some new products planned for 2017.
It’s a problem simply because older and current products aren’t driving growth.
Bottom Line for FIT Stock
Putting all the pieces of the puzzle together, the picture is one of weakness and limited future. Now, we can see it was only a fad, even if a very curious one for a while.
That’s not to say Fitbit is toast and that the market for fitness trackers is going to completely evaporate. It is to say, however, the market was never as big as touted and upgrades were significantly overestimated. The roll-out of a community-based feature of the app will appeal to a few consumers, but as has been the case to date, for most users it will be just one more thing they don’t have time to mess with… and that assumes they’re even interested enough to keep wearing their Fitbit.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.
