In late August, yours truly here cautioned that Fitbit Inc (NYSE:FIT) was headed over a cliff as the company we know today unless it took a big step in a different direction. Four months later, and with FIT stock down 48% since then, the company finally took that step.
Unfortunately, with four more months worth of new information to sift through, I can only conclude that it’s too little, too late, to rekindle Fitbit’s lagging shares.
It’s a call that most traders who still follow or even own Fitbit shares will dispute. But the pile of evidence against FIT stock is turning into a small mountain. Arguing more loudly won’t change that.
In fact, in some regards, a sideways death blow may have already been dealt this week.
Fitbit Sees the Light
The paradigm shift suggested in August was one that would redirect the company toward the healthcare-oriented market and away from the consumer-oriented market.
What’s the difference? Mostly in the mindset, though there are specific nuances that can separate devices from ones the medical community can encourage and ones caregivers couldn’t care less about.
Case in point: In September, health insurer Aetna Inc (NYSE:AET) informed some of its customers and employees that it would partially or even wholly subsidize the purchase of the Apple Inc. (NASDAQ:AAPL) smartwatch. The idea is to get wearers using the health apps that are or about to become available for the device. That could potentially lower Aetna’s costs — an ounce of prevention.
To its credit, Fitbit had already been named as the product of choice by Target Corporation (NYSE:TGT) a year ago as a means of raising employees’ healthcare awareness in the retailer’s bid to contain its healthcare costs. That was a relatively small step compared to the news Fitbit CEO James Park unveiled last week, though. Fitbit is teaming up with medical monitoring outfit Medtronic PLC (NYSE:MDT) to launch the iPro 2 myLog mobile app, which essentially combines Medtronic’s glucose monitor with Fitbit’s activity monitor for diabetes patients.
It’s not a game-changer, but it had to be at least a little encouraging to owners of Fitbit stock that the company is thinking outside the box.
Unfortunately, the inaugural deal with Medtronic doesn’t go far enough, fast enough.
Alphabet’s Disinterest Is Deafening
Lower-priced competition has already chipped away at Fitbit’s dominance in the consumer market. Meanwhile, much bigger (and better-funded) competitors are positioning in a way that could keep Fitbit’s medical device ambitions at bay.
On Tuesday, Alphabet Inc (NASDAQ:GOOG, NASDAQ:GOOGL) announced it had acquired smartwatch startup Cronologics. The terms of the deal weren’t disclosed, but the company’s watch, called CoWatch, is an impressive invention. The device, which was launched in September, has an OS that supports Amazon.com, Inc. (NASDAQ:AMZN) digital assistant Alexa.
Alphabet reportedly didn’t want the CoWatch for itself, nor did it need it. Alphabet is working on its own smartwatch, and is expected to launch its own watches that work with its own Google assistant next year as part of its Android Wear 2.0 initiative, ending the CoWatch line before it ever had a chance to catch on.
What does that have to do with FIT stock?
It’s simply telling that Alphabet saw a bigger threat in a product few have even heard of than in a Fitbit brand everyone has heard of. Alphabet could own Fitbit for a mere $1.7 billion, and it passed. (And Alphabet’s “other bets” consist of a big dose of medical technology!).
Owners of Fitbit stock should not only be insulted, they should start asking tougher questions — starting with why the company is being ignored.
Bottom Line for FIT Stock
Don’t misunderstand. This isn’t a call for a quick and bitter end to Fitbit. In fact, while it’s year-over-year sales growth is slowing down, it’s still growing, and the number of Fitbit users continues to inch higher. Fitbit still is the king of wearables, widening its lead on Apple in terms of market share last quarter.
But that’s a dubious honor. Apple has hit a smartwatch wall, and the smartwatch market itself shrunk 51.6% during the third quarter.
The concern for FIT stock isn’t that the coffin will be nailed shut anytime soon. The concern is that the company will continue to fight to the bitter end, spinning wheels, slipping into the red … and wasting your time.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.
