GoPro (GPRO) has been one of the worst performing stocks of 2015, down more than 70%. While Fitbit (FIT) stock is well off its 52-week highs, its 2.6% loss this year is close to that of the S&P 500.
Nonetheless, many investors have put FIT and GPRO in the same conversation — technology hardware companies that are still highly speculative long-term. Therefore, some think that Fitbit stock could ultimately become the next GPRO.
Fortunately, that’s not going to happen, and there are five reasons why.
Difference Between Camcorders and Wearables
Before GoPro cameras became must-have products, the camcorder market was nearly extinct. After all, smartphones have essentially taken the place of camcorders, much like they have for landline phones and cameras.
However, GoPro’s success caused its market share of the U.S. camera market to top 72% earlier this year. Although, one big reason for GPRO’s decline is that new products have disappointing, discounting is becoming widespread and GoPro products are starting to look like a fad.
Meanwhile, the wearables industry saw shipments surge 200% to 21 million total units during the third quarter alone, and Fitbit maintains a market-leading 22.2% share. Furthermore, total shipments are expected to grow from 76.1 million this year to a whopping 173.4 million by 2019.
So clearly, there is a big difference between the markets for camcorders and wearables.
Outlooks Differ Greatly
Another reason that GPRO has fallen so rapidly is because the company has consistently issued downbeat guidance, quarter after quarter. Earlier this year, analysts thought that GPRO could grow revenue 40% this year behind several big product launches.
Now, GPRO is expected to grow just 21% this year, and 13% next year.
However, FIT has not shared GPRO’s struggles. Its latest guidance of $1.8 billion for this year is approximately $400 million more than analysts expected for 2015 just four months ago.
FIT has produced two incredible quarters, and by all accounts is gaining momentum whereas GPRO is losing momentum.
What Shoppers are Buying
Clearly, the holidays are a big time for companies like GPRO and FIT to capitalize on increased consumer electronics demand. However, the performance of FIT and GPRO could not be more dissimilar.
In early December Morgan Stanley noted that GoPro product inventories had fallen just slightly in the holiday season, and that initial demand was weak. The firm then said that both Q4 and Q1 could come in below the already low expectations. Piper Jaffray had similar concerns, as product discounting and high GPRO inventories were noticeable during the shopping season.
Meanwhile, just about every research firm that covers FIT has said that its wearables were among the most sought after of the holiday season. Barclays went on to say that FIT was the “brand of choice” this holiday season.
A Look Beyond Core Businesses
At the peak of GPRO’s run, investors were sold on the prospects of its “media business.” However, that has since been recognized as a YouTube channel. That lack of diversity beyond cameras has played a large role in GPRO’s stock performance.
Looking ahead, investors are betting on drones to become GPRO’s next billion-dollar business. However, drones are still highly speculative, with a lot of uncertainty surrounding whether GPRO can disrupt the drone market and take it mainstream.
For FIT, fitness is its core market, with the number one mobile fitness application and products that all center around fitness. However, Fitbit’s growing popularity among consumers as a hardware company opens new doors for FIT to span into the smart wearables market, and also beyond wrist wearables.
Right now, no major secondary market for FIT has been identified, but fortunately, it has not needed one due to the rapid growth of wearables.
The Important Takeaway
Collectively, investors should see that FIT’s momentum remains high, and continues to rise whereas GPRO’s best days in the camera market have come and gone. What makes FIT different is in fact the outlook for wearables versus that of cameras, which is in fact a huge gap that should keep FIT revenue and profits soaring for many years to come.
That said, Fitbit stock may have a GPRO-like year at some point in the future, but that is no time soon. While Fitbit stock has not fallen to the same degree as GPRO since the beginning of this year, it is down 40% from its 52-week high. That degree of loss creates a great investment opportunity long-term, as FIT’s beat-and-rise earnings and guidance the last few quarters suggests that none of the fears among short sellers is, in fact, a reality.
In retrospect, this might be the most important takeaway for investors comparing GPRO to Fitbit stock — FIT stock is presenting real value with legitimate long-term upside, whereas GPRO is not.
As of this writing, Brian Nichols owned shares of FIT stock.
