I don’t care about Ionic Smartwatches. I don’t care about the fitness trend. Fitbit, Inc. (NYSE:FIT) has a dim future future. Fitbit has, and always will be, a fad. There is only one hope for FIT stock, and even that will take some doing.
What is a fad? It’s a little easier to describe what a fad is not. If you’ve ever watched ABC’s “Shark Tank”, one of the questions that gets asked of every product is, “What problem does it solve?”
Why is that the most important question? Because items that fix problems have the power to stick around, fixing the thing that needs to be fixed. Fads are products that don’t solve a problem and seem like a cool thing that everyone will jump on and get. Except they don’t solve a problem, so it’s mostly hype. There are some products that don’t necessarily solve a problem but have some utility of some kind, and those may also stick around.
Big Questions About FIT Stock
Ask yourself how will consumers respond to a product? Just put yourself in the mindset of a consumer, even a very imaginative one.
Look at FIT and its product. Who does it appeal to? Fitness buffs. People who want to lose weight. People who want to “get healthy.” Right off the bat, there are two problems. First of all, people who want to lose weight are going to buy a FIT product, and they are going to stop using it. That’s because most people who try to lose weight are going to fail, especially if it involves dieting.
The only people who lose weight are those who are committed to a lifestyle change, and that’s much harder to maintain than a multi-month plan to lose weight.
The second problem is that “get healthy” is in quotes. That’s because people just say they want to commit to this, but don’t have a plan. These people also buy a Fitbit, use it for a month, then stop using it.
Nobody I know that has ever purchased a FIT product still uses it.
Why? Because FIT products do not solve a problem. They do not make one lose weight. They do not result in a lifestyle change. They are just tools that substitute for other tools people use and fail at using.
Immediately, Fitbit becomes a product with a narrow user base. Not only that, if people like me who never wear watches are suddenly presented with something they have to wear all day, they are not going to do it.
FIT Stock Isn’t Alone, Fad-wise
Here are two other examples of fads. Home soda making machines, such as those made by Sodastream International Ltd (NASDAQ:SODA). I said people would grow tired of this product very quickly. It will be a novelty, I said. People will think it’s fun, and then rapidly find it to be annoying to make, annoying to have to refill flavor containers, and stop using it. I was right.
Sodastream wisely pivoted. Now it’s all about sparkling water. Growth has returned. For how long? I don’t know but I’m not optimistic. SODA stock rose from about $29 when it went public to $75 over just a few months. Then it cratered. Now it’s risen again, but I doubt it will still be there in 18 months.
Then there’s GoPro Inc (NASDAQ:GPRO). The name itself is problematic. The product is for those who want video on the go. Well, we have smartphones.
At the IPO, GPRO stock rose from $35 to around $85 in just two months. Now it’s in single digits.
FIT Stock Bottom Line
Fitbit now has partnered with a company to monitor glucose levels for people living with diabetes. Will this make a difference? Perhaps it will juice sales. If the company is able to pivot into medical usage, that is its only chance.
It could happen. FIT has $675 million in cash. Its TTM showed negative free cash flow of $94 million. It has, then, a lot of cash to burn before even coming close to being in trouble. It has a lot of time to buy. With $3.40 in cash, the business is selling for $3.48 per share.
If you think FIT stock can successfully move into the medical device market, you have very little downside for that speculative buy.
Lawrence Meyers is the CEO of PDL Capital, and manager of the forthcoming Liberty Portfolio stock newsletter. As of this writing, he has no position in any stock mentioned. He has 22 years’ experience in the stock market, and has written more than 1,600 articles on investing. Lawrence Meyers can be reached at TheLibertyPortfolio@gmail.com.