Fitbit Inc (NYSE:FIT) shares are pulling off a rare feat Monday: They’re rising. FIT stock jumped by about 6% on the back of a few new releases, but most important is the Ionic smartwatch that’s meant to compete with Apple Inc.’s (NASDAQ:AAPL) smartwatch.
Fitbit also announced its updated Aria 2 Wi-Fi Smart Scale and entered the headphone market via the Fitbit Flyer wireless earbuds. They’re cool new products, but they don’t hold a candle to the potential upside of Fitbit’s new Ionic smartwatch.
The Ionic — available for preorder for $299.95 starting today, and to be available in October — is Fitbit’s first plunge into the advanced wearables (read: smartwatch) market. Wall Street has punished FIT stock for the company’s lack of a true smartwatch, and conversely views this new product as something that could turn Fitbit’s growth narrative around.
But can this late entry really change the momentum of this seriously beaten company?
Fitbit Is Playing Catch-Up
Fitbit’s life as a publicly traded company has been scarce in ups and full of downs. While Fitbit stock surged in its first month of trading following its 2015 initial public offering, shares are now down more than 80% from their first day of trading, roughly 90% from their summer 2015 peak and 70% lower than its IPO price of $20.
This was an overly hyped IPO for a company with little competitive moat and some profitability concerns. Reality sank in shortly after its offering, and the selling has continued amid a stark slowdown in top-line growth and a switch from a full-year 2015 profit to red ink in 2016.
Can the Ionic smartwatch change any of that?
Before even considering a single specification, understand that Fitbit is playing catch-up — and moreso than any other player in the space. While Fitbit has been a leader in wearables for years via its fitness trackers, it’s extremely late to the game in smartwatches, where Apple reigns and Samsung, Sony Corp (ADR) (NYSE:SNE) and LG (among others) play.
It’s not an easy space to crack, either. Just look at traditional watchmaker Fossil Group Inc (NASDAQ:FOSL), which has launched a suite of new smartwatch products to offset declines in its traditional watch business. Wearables growth has failed to offset traditional watch declines, and FOSL has put out some pretty discouraging guidance.
Why should Fitbit expect a different outcome?
Nothing New About Ionic
Further bolstering the bear case: The Ionic smartwatch isn’t breaking a ton of new ground in the smartwatch space.
It comes with many of the same bells and whistles as other smartwatches these days, such as built-in GPS, a heart-rate monitor and water resistance. The aesthetic isn’t terribly different — it is thinner and lighter than the Apple Watch, but also wider. A couple things that stand out: The company says its display can be adjusted bright enough to be seen in direct sunlight, and Fitbit claims the battery will last for four days.
Other distinguishing features, such as Fitbit Coach (which includes customized workout videos), come at an additional cost.
Most important to the Ionic’s success is that it will run a new Fitbit OS that will allow third parties to create apps for the smartwatch, and it will even have a few apps preloaded from companies including Starbucks Corporation (NASDAQ:SBUX) and Pandora Media Inc (NYSE:P).
However, the Ionic seems less built for competing against other smartwatches, and more built to eventually replace its own fitness devices. That game of catch-up also shines through when you consider the app situation. Apple Watch and smartwatches running the Android Wear OS already have a robust app environment; Fitbit not only needs time for developers to create apps, but those developers have to determine it’ll even be worth the work.
Bottom Line on FIT Stock
I expect the Ionic smartwatch to cannibalize Fitbit’s existing health band business, because if nothing else, this is an excellent fitness-focused product that leaves its other offerings in the dust.
But Fitbit will follow in Fossil’s footsteps. The health bands’ sales will continue to struggle, and Ionic likely will only be enough to fill the gap (if that) … but it certainly won’t provide enough growth to turn FIT stock around.
Fitbit’s jump today is one built on hope, but not much substance. Wait for real evidence that the Ionic smartwatch is something special before chasing any sort of rally.
As of this writing, Luke Lango did not a hold position in any of the aforementioned securities.
