Fitbit Inc (NYSE:FIT) might have enjoyed a small bump yesterday, but shares have sunk around 20% in 2017 alone and are sitting nearly 70% lower than they were a year ago.
While Fitbit fans may have been hoping the company’s next earnings report — due after the bell today — will offer another bump, low expectations coupled with leaked photos of Fitbit’s highly anticipated smartwatch should sour such expectations.
Fitbit has been talking about transitioning from fitness trackers to full-blown smartwatches, but images of the first Fitbit smartwatch — dubbed “Project Higgs” internally — are being roasted by the tech world for being too similar to previous devices (mostly the GPS-tracking Surge).
Tech companies — especially those with hyped product release cycles — are always put under a microscope. And oftentimes, techie bloggers are more critical in their hot takes than the average consumer. The trouble, though, is that Fitbit doesn’t really have much room for error. Sales are declining, the stock is declining, the market is competitive and being a first mover in a space doesn’t guarantee a moat.
The investors that have hung on despite the past year’s decline have done so because they believe the product mix will turn around. Eventually, though, they’re going to need some evidence to back up such a theory. The recent photos of Fitbit’s smartwatch aren’t that.
Besides, buzz does trickle out from bloggers to shoppers. Beleaguered Fitbit needs all the positive buzz it can get, especially as it tries to expand beyond its current customer base. Not everyone is obsessed with tracking their steps, heart rate and water consumption.
The point of a smartwatch was to draw in such “average” consumers — those who might wear a watch anyway, but aren’t quite as into the gamification of their lives. Releasing a smartwatch that looks quite similar to the Surge doesn’t seem like a great way to draw in new fans.
After the bell today, Fitbit is supposed to post a 19-cent loss, compared to a slight profit a year ago. So while an earnings beat would technically be an improvement from the past (sequential) quarter, there’s barely a bar to stumble over. That loss is on tap to come on the back of a 44% decline in sales, too.
That drop that will contribute to a 27% decline expected for the full year, which comes on the back of a 20% last year. See what I mean about there not being much room for error?
Bottom Line for FIT Stock
In fact, most trends in the most recent full-year report weren’t favorable. Fitbit’s cost of revenue increased and its margins decreased. Sure, devices sold and active users did go up last year but hardware is what will keep that trend going — especially as the market continues to get more crowded.
Even if Fitbit stock manages a beat today, I’d stay away. The fundamentals are non-existent, the product mix is shaky at best, the company’s leadership is in flux as a result, and such negative sentiment is hard to turn.
Fitbit stock big-time whiff on its smartwatch is just the latest reason to stay away.
Hilary Kramer is the editor of GameChangers, Breakout Stocks, High Octane Trader, Absolute Capital Return and Value Authority. She is an accomplished investment specialist and market strategist with more than 25 years of experience in portfolio management, equity research, trading, and risk management. She has extensive expertise in global financial management, asset allocation, investment banking and private equity ventures, and is regularly sought after to provide her analysis on Bloomberg, CNBC, Fox Business Network and other media.