Fitbit Inc (NYSE:FIT) stock has traded below $7 per share for most of 2017, marking a continued streak of disappointment for shareholders who believed in the company when shares traded north of $40.
Needless to say, a lot has happened since FIT stock’s peak in 2015. Fitbit has been hammered by poor results, poor guidance, poor product management, poor product launches, poor management — in essence, poor everything. Yet at the same time, there has been one constant: Fitbit held on to the title as being the world’s biggest wearable device maker in terms of shipments and market share.
The Market Leader Until Weeks Ago
According to IDC, Fitbit shipped 4.7 million units in the third quarter of 2015 and accounted for a 22.2% market share. By comparison, Fitbit’s rival, Apple Inc. (NASDAQ: AAPL), shipped 3.9 million units and accounted for an 18.6% market share.
Fast forward to IDC’s most recent report, dated March 2, 2017, and investors will see that Fitbit shipped 6.5 million units in the quarter, good for a 19.2 percent market share.
Granted, Fitbit lost some market share versus 2015’s levels but both figures were superior to the number two player. China’s Xiaomi shipped 5.2 million units and grabbed a 15.2 percent market share while Apple was relegated to third place.
Fitbit’s Dethroning Might Last Long
As noted by my fellow InvestorPlace contributor Brad Moon, Apple shipped 3.5 million units in the first quarter which is more than the 3 million units FIT confirmed it shipped in its earnings report. In other words, FIT is no longer the world’s biggest player as that title has been given to Apple.
As a side note, most investors might agree it isn’t fair to compare Apple and Fitbit’s sales to those of second place Xiaomi whose Mi Band is priced at just $13.
But Apple’s lead could be temporary. Consider the fact that Fitbit guided its second-quarter revenue to a range of $330 million to $350 million. Also, during the first quarter, the average selling price of a Fitbit device totaled $96.45. Assuming Fitbit’s average selling price remains constant in the second quarter then Fitbit is on track sell anywhere from 3.42 million units on the low end to 3.63 million units on the high end.
If all else remains equal, Fitbit will fall 80,000 units short of Apple’s lead or 163,000 ahead of Apple. And this is good enough for me to put my money where my mouth is.
FIT stock naysayers can point to Strategy Analytics’ report as the one they have been waiting on for years. But don’t gloat too much, FIT haters, as even ranking a very close second behind Apple is for many companies in the tech field a success.
But there’s more to the story.
Fitbit acknowledged in its most recent conference call that its pending entrance into the smartwatch category (as opposed to strictly fitness) will give it access to the much larger total addressable market — a market that Apple already caters to. When taking this into consideration, it is even more likely that FIT can reclaim its title as the king of the smartwatch in the near-term.
2017 A Transition Year, Followed By Growth
I think there is another factor at play to support owning FIT stock. By the company’s own admission, 2017 is labelled as a transition year. Fitbit’s CEO James Park said during the most recent conference call that the current transition year will be followed up with growth in 2018. After that the company will be in a better position to address the “significant” global opportunity ahead.
And there are early signs today that Fitbit is well-positioned to deliver growth over the coming years.
First, Fitbit’s new subscription-based initiative grew revenue by 40% on a year-over-year basis. Granted, the company itself admitted that the revenue remains immaterial. But it serves as a sign of bigger things to come and that management isn’t solely focused on selling consumers a one-time-purchase hardware device.
Second, Fitbit’s enterprise segment accounted for less than 10% of total revenue but management has a convincing pitch to make: Fitbit devices have been proven to save companies millions of dollars. To better position itself, management also re-organized its business into two units: consumer health and fitness; and then enterprise health.
Bottom line, FIT stock has been nothing short of junk. At a time when many technology stocks are trading near all-time highs, Fitbit is trading near all-time lows. But investors should take advantage of FIT’s weakness in its transition year before a multiyear long growth trajectory begins.
At the time of this writing, Jayson Derrick owned shares of FIT stock.
