It might seem surprising that shares of one of the top wearable device makers, Fitbit Inc. (NYSE:FIT) has seen its share price decline by more than 10% so far this year. Especially since the wearables market has been gaining momentum over the past few years and smartwatches in particular look like they’re just about to take-off.
According to the IDC, the wearables market is seen doubling by 2021 and smartwatches shipments are expected to rise from 71.4 million units this year to 161 million units in 2021. The reason FIT stock has been struggling is that investors worried that the company, whose entire business was resting on the sales of its activity tracking wristbands, was becoming antiquated.
With all the other smartwatches coming on the market- many wondered if FIT would become the new BlackBerry Ltd (NYSE:BB). I’ll admit, I myself was one of those worried investors. However, in recent months FitBit’s progress toward becoming a bona fide smartwatch maker has started to change my mind.
FitBit is making major strides toward a much brighter future, and FIT stock price is looking more and more likely to rise in the coming year. Here’s a look at three catalysts for FIT stock.
Holiday Sales
There’s no guarantee that early predictions for sales during the all-important holiday quarter are accurate- but things are looking pretty promising for Fitbit so far. Earlier in November, management guided that revenue was expected to return to growth in the fourth quarter after a spate of declines as the company tried to rework its strategy.
All signs point to that forecast coming true so far. FitBit devices were a highlight at many Black Friday sales and initial reports suggest that consumers embraced the devices. Kohl’s Corporation (NYSE:KSS) CEO Kevin Mansell named Fitbit devices as one of the biggest sellers for the firm this year, and Amazon.com Inc. (NYSE:AMZN) featured the devices in many of its promotions.
Fitbit’s wearables also took up 9 out of the 10 spots on Amazon’s Best Selling Activity Trackers list and 6 out of 10 spots on the Best Selling Smart Watches list- a big deal because Amazon is said to command about 44% of e-commerce sales this year.
Turnaround Taking Shape
Fitbit has also been positioning itself for the future as it builds out its app ecosystem, fully functioning smartwatch offerings and lays the groundwork for becoming a personal healthcare company. The device maker was selected alongside eight of its peers to be part of an FDA precertification program that will make it faster and easier to regulate health software.
Fitbit’s role in this program gives the firm some clout in the digital health space and will likely give FIT some valuable insight about the approval process that could help the company develop its own medical software. Fitbit is already working on a sleep apnea program and medically-focused products could become a new revenue stream for the firm.
Not only that, but Fitbit’s shift toward its own app ecosystem and full blown smartwatches appears to be paying off as well. Device sales were up 7% between the second and third quarters, a bump that many are attributing to the Ionic smartwatch.
FIT’s apps are also performing well with the number of users accessing premium content rising 75% over the past year.
Buyout Rumors
Buying a stock on buyout rumors is a very risky plan. But if your interest in FIT stock is already piqued, it’s worth considering that there’s a chance FitBit could be acquired before the stock recovers.
Companies looking to add fitness tracking expertise to their portfolios are surely considering Fitbit right now, especially considering that FIT stock price is trading nearly 80% lower than its 2015 post-IPO highs.
Samsung is one potential suitor. CEO Young Sohn remarked that the firm is in the market to make some big acquisitions. He said he believes that the digital health space, specifically preventative health technology, is “an area of opportunity.” So there’s a chance he’s got an eye on FIT as an acquisition target.
The Bottom Line
FitBit isn’t completely in the clear just yet. Until we see exactly how the holiday quarter went, the optimism about devices sales are still just rumors. Even if FIT turns in an impressive fourth quarter, it’s important to remember that impressive for FitBit means simply turning a profit at this point.
The company is facing a lot of headwinds and its turnaround strategy, although promising, hasn’t taken hold just yet.
FIT stock is a risky play, but the company looks to be making a successful recovery and 2018 is likely to be a good year for FIT stock holders.
As of this writing, Laura Hoy was long AMZN.
