The turnaround that investors expected in Fitbit Inc (NYSE:FIT) and FIT stock is not going to happen.
The question, then, is what should investors do with their Fitbit shares, given that Apple Inc.’s (NASDAQ:AAPL) dominance of the wearable tech industry has wiped out any chance the company had to mount even a modest recovery.
Reasons to Avoid FIT Stock
Fitibt stock closed Friday at $5.50, up 1.66%. But the shares have fallen 27% year-to-date and more than 60% over the past year, trailing the S&P 500 index in both spans. Notably, the stock performance includes a modes jump in FIT shares after the embattled fitness tracker maker earlier this month reported better-than-expected first-quarter financial results. And with the stock now re-testing its lows, staying above $5-per-share becomes critical.
Back in January when FIT stock traded above $7, I warned investors to stay away. A month later, after the stock declined 18%, I advised investors to remain cautious and move on. It was clear then that although the smartwatch trend continues to disrupt the traditional watch market, prompting companies like Fossil Group Inc (NASDAQ:FOSL) to ramp up their own fitness trackers to win over tech-savvy Millennials, only Apple had figured out how to make money in the industry. And even then, that’s an assumption, given that Apple has yet to release its figures for the Apple Watch.
In the case of Fitbit, however, its trackers are its bread-and-butter business, whereas Apple can –presumably — carry losses on the Apple Watch just to be in the market. Yet, it lost its top position in terms of total product shipments in the first quarter to Apple. In the first quarter, revenues of $299 million beat Wall Street expectations by a wide margin of $18 million. And that’s with revenue falling 41% year-over-year. Meanwhile, its fitness tracker devices sales declined 38%.
The fact that device sales continue to fall at an accelerated pace remains a concern. And there are no signs that Fitbit stock can stem the tide. And while the company could grow sales and increased exposure by reducing its prices, as some analysts suggest, doing so would kill any margin FIT currently has. And that’s a tough call for a company that is already operating at a huge loss.
To offset the pressure from Apple, Samsung (OTCMKTS:SSNLF) and FOSL, FIT has been on an acquisitions spree — picking off companies and technologies, it hopes will give its smartwatch product an edge. However, these deals, including acquiring smartwatch pioneer Pebble in December and then Vector Watch in January, have yet to pay off.
They intend to “start building other new and amazing products, features and experiences, incorporating [Vector’s] unique technology and knowhow with Fitbit’s experience and global,” said a Vector spokesperson.
But with management projecting second-quarter revenue of $330 million to $350 million, which is below consensus of $348 million — and EBITDA of negative $45 million to negative $55 million — worse than consensus estimates of negative $34.5 million for the quarter, things are going to get much worse for FIT stock before they get better.
The Bottom Line for FIT Stock
It might not be time to stick a fork in Fitbit stock, but it’s becoming clearer that betting on the smartwatch market and fitness trackers have been a bad decision for many investors. While FIT stock looks cheap today, trading at all-time lows, there’s still no sign that the San Francisco-based company, which is losing money, can ever get its act together. Until then, Fitbit stock will struggle to stay above $5 — an important psychological mark for investors.
As of this writing, Richard Saintvilus did not hold a position in any of the aforementioned securities.
