In August of last year, GoPro Inc (GPRO) entered a stock death spiral, and by November, Fitbit Inc (FIT) was starting to follow. As inappropriate and incorrect as it may be, the market has seemingly classified GPRO and FIT as the same company, with the former well deserving of its losses and latter doing nothing but beating expectations and raising guidance since its IPO.
Thankfully for Fitbit stock owners, the company is finally starting to create some separation from GoPro stock, with the market unable to ignore the progress and promise that’s driving FIT’s business forward.
Since the end of March, Fitbit stock has jumped 27%, while GoPro stock and the S&P 500 have seen gains of 7% and 1%, respectively.
It has been a long time since FIT has created this kind of separation from GPRO, much less outperformed the broader market. Fact is, investors have been skeptical of Fitbit’s long-term outlook ever since Apple Inc. (AAPL) and Alphabet Inc (GOOG, GOOGL) entered the wearables market with smart technology and far larger ecosystems.
Yet, Fitbit finished 2015 as the undisputed wearables market leader with a 27% market share for 2015. Further, FIT achieved growth of nearly 150% despite several Android Wear launches and an Apple Watch launch in early 2016.
And lastly, Fitbit stock finished the fourth quarter of 2015 with a higher wearables market share of 29.5% than it maintained for the year, implying increased demand late in the year and a clear victory during the holiday season.
The combined effect of all this success in 2015 was revenue of almost $1.86 billion, more than $400 million above what analysts expected from Fitbit’s full-year at the time of its initial public offering in June of 2015.
Nonetheless, all of this great performance was unable to separate FIT from GPRO, or prevent its 50% stock losses this year.
What Separates Fitbit (FIT)?
Given the trouble that Fitbit stock has had over the last few months (despite strong operating performance), one must wonder what the company had to do to break the connection from GPRO.
The answer: Fitbit’s new Blaze smartwatch and its latest basic wearable, Alta, each had to ship more than one million units — the former did so in less than a month! That all but assures success for Fitbit in the smart wearables space, something that analysts questioned when the company unveiled and launched the Blaze.
This success is a huge deal for Fitbit stock, with both the Blaze and Alta having higher retail prices than the company’s previous products, and will likely create higher margins as well. As explained in a previous article, I was just hoping that FIT could sell three million smart wearables on an annual basis by 2019, never did I expect the company would ship one million in just one month. That’s insane!
All things considered, it is now clear that Fitbit CEO James Park knows what he’s doing and what consumers want in a wearable. It’s this continuation of success that has FIT trending higher.
That said, it is worth noting that Fitbit stock jumped more than 2% on Monday despite losses in all three major market indices. The latest news to drive FIT higher was a research note from Morgan Stanley where its analysts are forecasting that first-quarter results and second-quarter guidance will top analyst expectations. To no surprise, the research firm attributes the strong performance to Fitbit’s Alta and Blaze sales.
In addition, the same analyst is seeing reduced demand for GoPro products, and believes that expectations for the coming quarter will prove too high.
In other words, the analysts who once put FIT and GPRO in the same bearish reports are now seeing the major difference between these two companies, and can see that the demise of GPRO has nothing to do with FIT.
Looking ahead, this is great news for Fitbit stock owners, suggesting more independent research on Fitbit shares that is free from GoPro stock.
If so, FIT stock should trade much higher in the quarters to come (with it currently trading at just 10 times FY2017 earnings), and it’s very likely that those revenue and profit expectations are very conservative.
As of this writing, Brian Nichols owns shares of Fitbit stock
