Fitbit Inc (NYSE:FIT) is going through one of the most eagerly anticipated, and widely predicted, crashes in technology history. FIT stock is off 13% today, bringing its 52-week losses to more than 60%.
The Information is reporting, and everyone else is repeating, that later today, Fitbit will report earnings lower than expectations, and that the company will try to save $200 million by laying off 10% of the workforce.
The news crashed Fitbit stock, which was down almost 15% within minutes of Monday’s open.
The whole “fitness band” market seems to be imploding, after Fitbit itself bought out Pebble and made some noise about acquiring Jawbone, two other major players.
Analysts, however, were expecting this. Jim Cramer called Fitbit “a commodity” after the stock had already crashed 75% in 2016.
Investors are left wondering whether FIT stock is worthless. The answer to that question is: probably. But one analyst has described how the company can yet be turned around, and CEO James Park agrees, in theory, with that analysis.
Fitbit Is Dead
Fitbit has become a stock people love to hate.
Our Richard Saintvilus notes that only shorts have made money on FIT stock, and that the situation is looking “pretty grim, as usual.” Our Aaron Levitt says anyone buying Fitbit today is just “doubling down on stupid.”
Our Chris Lau is more diplomatic, writing in a review of the space that the company has “a hill to climb.” The fact is all makers of wearables are having a very difficult time right now. Garmin Ltd. (NASDAQ:GRMN), whose Vivosmart HR also measures heart rates just like the Fitbit Charge 2 (which I wear), fell 3.5% in early trade Jan. 30, in sympathy with Fitbit. Apple Inc. (NASDAQ:AAPL), whose Apple Watch has long been seen as the Fitbit killer, is also down 1%.
At issue is the idea that Fitbit is — like GoPro Inc (NASDAQ:GPRO), the wearable camera and drone maker — a “fad” that people buy for Christmas and throw in the recycling bin by spring. Who, after all, wants to count how many steps they take very day? How often do you need to check your heart rate because you catch on to its patterns? Who is really going to track everything they eat to lose a few pounds, unless they have to?
What is a consumer supposed to do with all this data?
The Real Customers Are Insurers
Fitbit founder James Park says the company’s products should be able to save your life. I have been writing about this capability since 2003. Health monitoring should be a “killer app.”
Making it happen, however, is not a consumer sell. It’s a business sell. Fitbit is sold as fashion, as something you want, when it needs to become compulsory, something you’re required to have.
Corporations can save billions in healthcare costs if they make sure their employees are healthy. Fitbit data can tell them, in real time, whether employees are meeting corporate wellness goals. Insurers can manage the process of wellness goals and adjusting insurance rates, possibly in real time.
The end of Obamacare, with its promise of guaranteed coverage, should make this both a legitimate industry interest and highly profitable. Use this or lose your coverage. Obey this device’s dictates or see your insurance rates go up. Watch your pre-diabetes become a pre-existing condition and you’ll pay.
Apple Will Make the Turn
Fitbit’s current system lacks the accuracy necessary to do this.
Apple, on the other hand, can build in that kind of accuracy. Moore’s Law is going to bring the Apple Watch into line with the costs of the current Fitbit, turning it into the Commodore 64 of health bands. We know that Apple is playing this long game, but the slow take-up of the Watch has hidden this from view.
At this point, I doubt that Fitbit has the staying power to make the turn I advocated last year — the turn that could have saved some value for FIT stock holders. But I have no doubt that Apple has such staying power, not only to design something that’s accurate but to get it approved by the FDA as a medical device.
It’s at the point of FDA approval that a health band, like the Fitbit or the Apple Watch, can be made mandatory, first for employees at risk for heart attacks and diabetes, and later for all employees. It’s compulsion that will make the band business grow, not fashion.
Fitbit has missed the turn.
Dana Blankenhorn is a financial and technology journalist. He is the author of the sci-fi novella Into the Cloud, available at the Amazon Kindle store. Write him at firstname.lastname@example.org or follow him on Twitter at @danablankenhorn. As of this writing, he did not hold a position in any of the aforementioned securities.