Fitbit Inc (NYSE:FIT) has enough cash to get through one more Christmas season and has one last product to throw at its fitness tracking customers. FIT stock has lost more than 23% this year.
The product is a smartwatch dubbed “Project Higgs,” targeting the company’s niche of fit amateur athletes. It will have accelerometers, accurate GPS tracking and a heart rate monitor. Fitbit wants to integrate music streaming services into it, so there will be Bluetooth headphones.
For bicyclists, trekkers and other outdoorsy people, it seems like a good thing.
While there has been speculation the new Fitbit will compete directly with the Apple Inc. (NASDAQ:AAPL) Apple Watch, leaked photos show it’s more like the current Fitbit Blaze product with a plastic band, physical buttons and a small display. It is also likely to share that product’s $150 retail price point. The Apple Watch costs more than double that amount.
The new Fitbit watch needs to be a hit because the rest of FIT’s business is collapsing.
A Roll-Up of Nothing
While the fitness tracker business seems to be a fad that is rapidly fading, Fitbit has picked up the rest of the industry’s intellectual property for bargain prices and husbanded cash for one last run at the market.
The company cut 110 jobs after a disastrous Christmas and pared expenses down to $390 million for the quarter ending April 1, 2017, about 20% lower than the previous year.
The quarter ended with $706 million in cash and short-term assets, and no debt. It managed to achieve positive operating cash flow for the period, and will get through this summer with deep discounts to its re-sellers.
While Fitbit has sought to buy up as much of the intellectual property in the space as possible, it still faces a lawsuit from Immersion Technology over haptic feedback that shakes the tracker during things like breathing exercises. Immersion wants Fitbit to stop making devices that infringe on its patents, and is seeking relief in China as well as the U.S.
Odds Getting Long
Fitbit sales are down 70% year-over-year, and FIT stock has cratered from a high of nearly $17 per share last October to this week’s opening price of $5.61. At that price, the market cap for Fitbit is down to $1.25 billion, equivalent to a little over half of its 2016 sales of $2.17 billion.
But like other InvestorPlace writers, I have been warning for some time that the company faces long odds, even comparing it to the Tamagotchi craze of the 1990s. I personally own a Charge 2 band, it’s my second one, but the products are cheap and flimsy, seemingly held together by SuperGlue and hope.
Our Richard Saintvilus wrote recently that the stock is heading to $3 per share, noting that the Apple Watch is not the only competitive threat.
Garmin Ltd. (NASDAQ:GRMN), with a market cap of $9.4 billion and experience with GPS technology, also makes a line of trackers for trekkers. Under Armour Inc (NYSE:UAA), with its clothing lines and connections with famous athletes, also has a line of athletic trackers that includes a chest strap monitor and a scale, along with some excellent software.
Bottom Line for FIT Stock
Fitbit is not in imminent danger of collapse, but unless the new watch is a hit it could be out of business by this time next year. The weakness of the industry, however, gives it a chance, if the new watch delivers value to cost-conscious athletic customers.
Your other hope is that the company, and its intellectual property, is picked up near the current price by a company like Under Armour or Nike Inc (NYSE:NKE), seeking to protect their future in the niche.
There are no guaranteed profits either way. FIT stock here is a speculation, a gamble, a bet, rather than an investment. A hit means you double your money. A miss means you lose it all.
Dana Blankenhorn is a financial and technology journalist. He is the author of the political polemic Saving Trumpistan, Restoring Democracy, 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 did not hold a position in any of the aforementioned securities.
