Fitbit Inc (NYSE:FIT) was hit with yet another setback this week when reports surfaced that the company won’t be ready to release its new smartwatch until fall 2017. Fitbit stock lost more than 3% on Tuesday, adding to its massive 20%-plus decline in 2017.
Not having a smartwatch to put on the shelves for another six to eight months is a big deal for FIT. The company is in a do-or-die situation with demand for its trackers slow and investors drawing comparisons between Fitbit wristbands and Blackberry Ltd (NASDAQ:BBRY) phones. Apple Inc. (NASDAQ:AAPL) has already put out its second-generation Apple Watch, so FIT needs to get something on the shelves that will give consumers a choice.
However, the company is struggling to make its watch waterproof — a feature that Apple already offers — so the smartwatch’s launch is being pushed back.
It’s a concern, but it’s simply one of many. Whether Fitbit releases a smartwatch tomorrow or next year doesn’t matter if the firm can’t address the other challenges it’s up against.
Growth Is Stalling
The major issue facing Fitbit at the moment is growth. Where does the firm fit into the wearables category in five years?
Right now, the company is clinging on to its reputation. As the first major fitness tracking device, Fitbit wristbands are certainly well-known. But with companies like Apple and Alphabet Inc (NASDAQ:GOOG) shifting their wearables’ focus toward health and fitness, Fitbit will struggle to compete.
Also, don’t count out other competitors such as China’s Xiaomi, as well as Garmin Ltd (NASDAQ:GRMN), who can claw away at the periphery.
International Expansion
Another huge issue that Fitbit needs to address is that the U.S. fitness tracker market is nearing saturation. While FIT’s international sales are growing, the company has yet to put forth a solid plan for additional expansion.
Which is a truly lost opportunity, as a number of emerging markets — including China — offer a lot of upside potential for the fitness tracker business.
Disorganized
The inability to get a smartwatch out by fall will hurt Fitbit, but it also speaks to a larger problem of the company being unable to put together any sort of concerted effort that appeases both consumers and shareholders.
For instance, despite demand and calls for Fitbit to unleash an actual smartwatch, the comapny put out the Fitbit Blaze, which was widely criticize for being “less” than a smartwatch. The product rolled out without any new activity tracking features, it didn’t have GPS functionality within the device itself, and it sported poor battery life, to boot.
FIT stock holders should be troubled about the fact that Fitbit won’t have a smartwatch until fall, but they should be more dismayed that it doesn’t have one yet. The writing has been on the wall for some time.
Moreover, Fitbit’s idea that creating its own app store will somehow change its fortunes — but the chances of that catching on amid the ubiquity of the iOS App Store and Google Play Store are slim.
Bottom Line on FIT Stock
Fitbit shares are off more than 60% in just the past year alone. That’s not just momentum — this slump is based on real, awful fundamentals and projections for a decline in sales and deeper losses this year.
FIT stock suffers from too many problems and few solutions. Its plans to branch out into the app world could be dead on arrival, and the lack of a smartwatch for half a year means any potential turnaround is likely delayed for at least half a year.
And that’s if the smartwatch is actually a success — something shareholders can’t afford to assume.
Unless Fitbit’s management puts out a concrete turnaround plan between now and then (one that hopefully better addresses the wide-open international opportunity), there’s no reason to believe that the stock will suddenly pull a 180 for no reason whatsoever.
Avoid FIT stock, no matter how much of a “discount” it appears to be.
As of this writing, Laura Hoy was long AAPL.
