Since falling from a 52-week low of $4.90 on June 22, shares of Fitbit Inc (NYSE:FIT) have regained 5% as of July 11, prompting some market watchers to suggest FIT stock has bottomed.
Despite the company’s 28% year-to-date decline, there’s still more room for FIT stock to fall, given the company’s competitive struggles against the likes of Apple Inc.’s (NASDAQ:AAPL) dominance of the wearable tech industry and the recent gains made by Garmin Ltd. (NASDAQ:GRMN), which has wiped out any chance Fitbit had to mount a comeback.
With reports that Samsung Electronics (OTCMKTS:SSNLF) — for the first time — leaped past Fitbit in the wearables market in the first quarter, Fitbit stock resembles a falling knife, with the potential to fall to $3 per share. Investors would do well to stay away.
How Fitbit Ran Out of Gas
With revenue booming at the time, you’d have been hard-pressed to find a hotter name than Fitbit when the wearable tech specialist went public in June 2015, with shares offered at $20 each. A few days ahead of the IPO, CEO James Park told CNBC that the company could stay competitive even as Apple’s all-purpose wearable device — the Apple Watch — was nearing its launch.
“There’s over $200 billion of consumer spending on health and fitness. This is a massive market. There’s room for more than one dominant player,” Park insisted. “The brand Fitbit is really synonymous with health and fitness tracking, so we feel that we have really significant competitive differentiators in the market.”
FIT stock soared 52% on its first day of trading, reaching $30.40. The stock added 20% the next day. Fitbit, however, couldn’t sustain the revenue growth needed to justify the optimism. Efforts to adapt and expand the business haven’t been enough to fight off competitors like Fossil Group Inc (NASDAQ:FOSL) that entered the market. FIT stock ultimately peaked at $47.60 in July 2015 and has since lost about 90% of its value.
Shrinking Position in Expanding Market
Here’s the thing: Fitbit’s competitive position seems to worsen just as the overall wearable device market is expanding. The company suffered a 38% year-over-year decline in first quarter, with 3 million devices shipped even though the overall wearables market grew by 18% to 24.7 million devices, according to research firm International Data Corporation (IDC). Apple’s higher-end Apple Watch device enjoyed a 64% surge in the same period.
First quarter revenue fell 40% while the company swung to a net loss of more than $60 million. Things will get worse.