Fitbit Inc (NYSE:FIT) is the Tamagotchi of our time. Years from now, when health tracking is routine, we will remember what it was to own a Fitbit, to track your steps, monitor your sleep and wonder what all the fuss was about.
Personally, I spent the weekend putting my own unit back together with Super Glue. It’s my second. I should feel favorably disposed toward the company.
But I can’t. Fitbit stock is down nearly 30% in 2017, and over 63% over the last year. Its March quarter revenues of $298.94 million were barely half those of 2016 ($505.36 million). The current market cap of $1.17 billion may just fit under its projected 2017 revenue.
The problems of FIT and Tamagotchi are similar. You find yourself constantly fiddling with it to no good effect. If you let it take over your life, there’s no assurance you will be any healthier. It’s not accurate enough. It’s a fad for baby boomers afraid of death.
The Death of Fitbit Stock
The death of FIT stock, too, is coming into focus. The company is debt-free and had $726 million in cash and short-term investments on its books at the start of April. There is inventory it can clear, but more important there is a ton of intellectual property for someone to go through.
Fitbit itself seems to understand this. Why else would it be interested in buying Moov, which makes a fitness tracker worn around your head. This would follow its earlier acquisitions of Pebble, Vector and Coin.
Some analysts see FIT’s roll-up of the space as presaging its delivery of a smartwatch. I don’t see it getting there. It has already fallen to third in its category, behind Apple Inc. (NASDAQ:AAPL) and Xiaomi. The cost of competition is accelerating. Fitbit doesn’t have enough cash to play the new game.
But this market is growing, by 18% per year according to IDC, and the company would be worthwhile, as an acquisition. In addition to patents, there are customer lists, product history and anonymized data on millions of people that could be used to develop something worthy of attention by medical professionals.
FIT: Who Would Buy It?
The next frontier for the wearable market is tracking health, not fitness. The sales channels for fitness are drying up, but the cost to get a medical device approved by the Food and Drug Administration is only going to rise.
Thus the most likely buyer for Fitbit stock would be Intel Corporation (NASDAQ:INTC), which has long had ambitions in this area and was reportedly on the move for Moov. Intel is selling technology to a host of wearable makers, its name could help move the existing inventory, and the customer lists would give it a head start on its next product launch.
I don’t think the wait would be worth it, any more than the attempted pump-and-dump of FIT stock last year by a Virginia man was worth it — he was arrested after netting $3,000. I agree with Laura Hoy that this is not a company to invest in — it’s one you gamble on. Once the Fitbit stock price falls below $5, and the market cap falls below $1 billion, the floor’s the limit.
Intel, or another acquirer, can simply wait for FIT to fall into its lap, like ripe fruit. The company’s best hope is to get a bidding war started between U.S. and Asian acquirers, but would that deliver a price over its current market cap?
I don’t know. Remember, in a Moore’s Law world, technology inventory is like rotting fruit. Fitbit needs to do more than put its products on sale. It needs to aggressively put itself up for bid, before it becomes worthless.
Dana Blankenhorn is a financial and technology journalist. He is the author of the historical mystery romance The Reluctant Detective Travels in Time, available now at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing, he owned no shares in companies mentioned in this article.
