Giving credit where it’s due, while Apple Inc. (NASDAQ:AAPL) has remained center stage of the smartwatch discussion because, well, it’s Apple, Fitbit Inc (NYSE:FIT) is the name that created the new category of wearables simply by validating the idea of something wrist-worn “doing” something. Apple just took the ball and ran with it.
Nevertheless, like all markets, there’s room for more than one player. Indeed, there’s room for several players in the smartwatch race, as each of them bring something unique to the table that appeals to a different subset of interested consumers.
The problem for current and would-be owners of FIT stock is, the inflow of new combatants in the smartwatch arena is slowly but surely and consistently chipping away at Fitbit’s market share, a market it largely created by itself. For better or worse, Fitbit will have one last chance to convince the market it’s got a compelling future.
Shrinking Market Share
The truth of the matter is, the smartwatch market is growing; that much is undeniable. In the second quarter of this year, smartwatch shipments grew a little more than 60% on a year-over-year basis.
The bulk of that advance can be attributed to Apple and Fossil Group Inc (NASDAQ:FOSL), which finally got serious about the business, though continuing to embrace of the Android Wear operating system from Alphabet Inc (NASDAQ:GOOGL, NASDAQ:GOOG) also has gotten the attention of consumers who still love old-school looks from makers like Michael Kors or Tag Heuer, while names like Garmin Ltd. (NASDAQ:GRMN) still appeal to utility-oriented consumers. There’s a little something for everybody now, setting the stage for what should be sales of more than 80 million smartwatches and roughly 145 million fitness-related wrist-worn devices by 2021.
It all sounds compelling on the surface. But, there are more than a few concerns fans of smartwatch stocks should digest, especially including FIT shareholders.
Perhaps first and foremost, the more the smartwatch market matures, the less of it Fitbit controls. In the second quarter of 2017, Fitbit made up 12.9% of the wearable market. In the same quarter a year earlier, it controlled 24.1% of the wearable market.
To some degree the disparity can be chalked up to differing release dates of Fitbit’s and other manufacturer’s products. It’s suspicious, however, that Fitbit lost a similar amount of market share (year-over-year) in the first quarter of 2017 as well. It was up against some tough numbers of its own, to be fair, but a closer inspection of the numbers reveals most of the market share Fitbit lost during the first half of the year stemmed from new entrants, and entries, into the wearable market.
Fitbit just hasn’t remained competitive.
This Is It For Fitbit
Die-hard owners of FIT will be quick to point out (and understandably so) that Fitbit loyalists were simply waiting for the release of the Ionic, which was finally unveiled last month.
It’s impressive to be sure, doing all the things the company’s fitness bands did in the past (and still do), but adding things like contactless payments and music to the mix. The device will also let you know when you get a call or a text, though you can’t exactly respond to them. It may not quite be the Apple smartwatch killer some suggested it would be, but for its $300 price tag, it’s a respectable entry into an increasingly crowded race.
The question is, will it successfully compete this holiday shopping season with the Apple smartwatch, plus new smartwatches from Garmin, Tag Heuer and Fossil, just to name a few?
Fitbit may have mainstreamed the idea of wrist-based wearables and Apple may have gotten consumers comfortable with the idea of their sizeable price tags, but this is a new era. Now that the heavy lifting of establishing the market has been done though, it’s become all too easy for anyone and everyone, including value-oriented smartphone maker Xiaomi, to get in on the smartwatch game. Most FIT stock owners don’t know it or care to admit it, but Xiaomi now enjoys more wearable market share than Fitbit.
If the Ionic ends up being anything less than a hit this Christmas, it’s unlikely investors would be willing to give it yet-another chance. And, it’s not going into this year’s holiday spending season surrounded by a great deal of buzz.
Bottom Line for FIT Stock
None of this is to suggest the Fitbit name won’t survive. The company has spent millions of dollars and a few years developing the brand name, and at the very least someone will own the moniker in the future.
It’s also not to suggest the company we currently call Fitbit today won’t be around come January if the Ionic is anything but heroic during the fourth quarter of this year. Fitbit is doing some business, even if it’s not profitable business. It’s simply to suggest Fitbit has burned off all of its goodwill and patience with investors. If the Ionic doesn’t decidedly reverse the company’s fading fortune, the stock’s going to have a near-impossible time attracting the buyers needed to make it move meaningfully higher.
There are other, safer and smarter stock picks out there.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities. You can follow him on Twitter.