Fitbit Inc (NYSE:FIT) may be great to improve your health, but as for Fitbit stock, it has been lethal for investors. During the last 12 months, FIT stock is off a horrendous 60%. This is certainly another case study of how high-profile IPOs can quickly come undone.
But what about the future? Is there hope for Fitbit stock? Might there be a value play here?
As I’ve written various times for InvestorPlace, it’s probably not a good idea to be hopeful. For example, FIT is a company that develops a product that really is not a must-have. According to a recent study from Gartner, the abandonment rate on fitness trackers is 30%. The most common reasons for this include: users either get bored or the device breaks!
The conclusion from the report: “Dropout from device usage is a serious problem for the industry. The abandonment rate is quite high relative to the usage rate. To offer a compelling enough value proposition, the uses for wearable devices need to be distinct from what smartphones typically provide. Wearables makers need to engage users with incentives and gamification.”
The Other Problems for FIT Stock
But this is definitely not the only major issue with Fitbit stock. Let’s face it, the competitive environment remains intense. The company must fight against tough rivals like Garmin Ltd. (NASDAQ:GRMN), Samsung (OTCMKTS:SSNLF) and Microsoft Corporation (NASDAQ:MSFT). Although, the biggest threat is Apple Inc.’s (NASDAQ:AAPL) Apple Watch, which is still in the early phases.
In light of all this, is it any wonder that Wall Street is concerned with FIT stock? Of course not.
More importantly, the company is already reporting major problems, as seen with the latest warning on fourth-quarter earnings. Fitbit’s guidance calls for a loss of 51 cents to 56 cents a share on revenues of $572 million to $580 million. By comparison, the prior forecast was for earnings of 14 cents to 18 cents a share and revenues of $725 million to $750 million. Overall, it looks like the holiday season turned out to be a disaster for the company.
Unfortunately, the bad situation is expected to continue. The full-year prediction is for revenues of $1.5 billion to $1.7 billion and a loss of 22 cents to 44 cents a share on FIT stock. Wall Street, on the other hand, was looking for a much more robust $2.38 billion on the top-line and profits of 64 cents a share.
Bottom Line on Fitbit Stock
To deal with the challenges, FIT has a plan that looks weak. The company expects to reduce the workforce by mere 6% and to take other vague efforts to reduce operating costs, leverage data and launch products into new categories. Interesting enough, Fitbit wants to focus more on the smartwatch market, but this will likely mean more expenses.
Even worse, CEO James Park said that the issues with the company were “temporary” and the “performance is not reflective of the value of our brand, market-leading platform, and company’s long-term potential.”
Huh? Well, this really does seem like the talk of someone who is out-of-touch. And this should definitely be ominous for holders of FIT stock.
Granted, perhaps there may be a buyout. But when it comes to broken hardware companies, this may be wishful thinking. For example, think about how long the rumors for a purchase of the beleaguered BlackBerry Ltd (NASDAQ:BBRY) have existed.
For the most part, Fitbit stock may not be very interesting to a suitor. And this is not because the products are sub-par. Instead, it could be as simple as that the market has hit maturation levels and that big players like AAPL stand to capture a big part of what’s available.
Tom Taulli runs the InvestorPlace blog IPO Playbook. He is also the author of High-Profit IPO Strategies, All About Commodities, and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.
