October will be a big month for Fitbit Inc (NYSE:FIT), as it was recently announced that its new Fitbit Ionic and Fitbit Flyer products will go on sale then.
What makes this so exciting is the fact that I believe the Fitbit Ionic smartwatch is the most exciting device FIT has rolled out in years.
It plays streaming and stored music, you can wear it in the pool and it finally gives consumers the freedom to pay on the go – there’s no need to keep your wallet on you while exercising thanks to the NFC “tap” system. After years of muddled designs and Wall Street disappointment, FIT finally has the makings of a true sports watch here.
Unfortunately, the competitor looming on FIT’s flank has also unveiled a smartwatch that plays music, is water resistant and supports NFC payment.
While the Series 3 Apple Inc. (NASDAQ:AAPL) Watch is still working out a few kinks on the fitness monitor side, third-party app developers are ramping fast to fill the gap. But the Apple Watch can double as a phone wherever it has network coverage; Ionic can’t.
As long as that’s the case, AAPL retains the edge with convenience-chasing consumers who want to streamline the devices they carry on the road and can afford an extra $100 or so.
That’s not necessarily a deathblow to FIT, but it’s enough to put the company on the defensive with the affluent market it covets and shareholders demand. Ionic now needs to deliver a truly great fitness monitoring experience that compensates athletes for forcing them to choose between packing a separate phone and going off the communications grid.
Right now you can’t even reply to text messages on the FIT device, let alone call anyone back. If FIT becomes a hard sell with the people who can’t (or won’t) unplug, its natural addressable market shrinks.
Fitbit Needs a New Strategy
Granted, Apple currently controls only 15% of the wearable computing market at best, so it’s still anybody’s game. FIT can do very well for itself becoming the fitness watch that plays into the Samsung-dominated Android ecosystem — integration between phone and watch on that side of the world has lagged, and since FIT has a head start on the fitness apps, that’s a place where it can not only remain relevant but thrive.
Of course, to move closer into the Android universe Fitbit needs to pivot its strategy. Going alone against an integrated AAPL watch/phone ecosystem is the long-term death sentence that Wall Street saw coming when FIT slid below $5.
And with Samsung remorselessly innovating around its own Galaxy Watch, even a best-of-breed outsider is going to have to be a true category killer to maintain a viable presence against what’s effectively the home team.
Bottom Line on Fitbit Stock
Fitbit Ionic gave FIT stock a healthy second wind, and I wouldn’t be surprised to see the shares challenge $10 in the near term if buzz in the athletic community is good enough. But down the road, this is a company that will work better as part of a larger product universe than it does on its own in the “fitness technology” space.
Maybe Samsung or some other technology vendor buys FIT, and maybe that bid comes from high-tech Nike Inc (NYSE:NKE) or even a relatively conventional apparel brand like Under Armour Inc (NYSE:UAA).
One way or another, this is either a fitness company or a technology company. And since FIT seems to do fitness better than competing device makers, I recommend that that’s the way to go.
Hilary Kramer is the editor of GameChangers, Breakout Stocks, High Octane Trader, Absolute Capital Return and Value Authority. She is an accomplished investment specialist and market strategist with more than 25 years of experience in portfolio management, equity research, trading, and risk management. She has extensive expertise in global financial management, asset allocation, investment banking and private equity ventures, and is regularly sought after to provide her analysis on Bloomberg, CNBC, Fox Business Network and other media.
