Earnings Show That Time Is Running Out for Fitbit Inc

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Fitbit - Earnings Show That Time Is Running Out for Fitbit Inc

Source: Via Fitbit

Fitbit Inc (NYSE:FIT) shares plunged in overnight trading after it reported a down Christmas and negative guidance.

What was a $47 per share stock soon after its public offering in 2015 was due to open February 27 at $4.77 per share.

While the company’s earnings release highlighted $571 million in quarterly revenue and $61 million in free cash flow, the more important news is that the Ionic smartwatch was a failure.

The Ionic carried a list price of $299 and was the company’s big hope for the Christmas season, but even fans of Fitbit saw little additional value. I’m one such fan. Instead of an Ionic, I got a Fitbit Blaze for the holidays — at about $150.

This isn’t going to be good enough for investors. Fitbit’s market cap is down to $1.3 billion, too small for most analysts to follow. Those that were following it before earnings called it a hold.

Fitbit Has the Cash to Try Again

The best news is that Fitbit still has enough cash on the books — almost $342 million — to make another run at the market. And there is no long-term debt.

Fitbit bulls highlighted CEO James Park’s promise of a new “mass appeal” smartwatch later this year. The earnings statement focused on how the launch of Fitbit OS and software development kit (SDK) was an important step for the company into the smartwatch market.

The market’s bitterness was made greater by the fact that statements last month were uniformly positive, InvestorPlace’s Larry Ramer to expect a break-even quarter. The company now expects $247.5 million in revenue for the current quarter, against an analyst estimate of $340.3 million.

Thus, Techcrunch called the quarter “a complete whiff.”

Fitbit Is Trying to Compete With Apple in Health Tracking

The Ionic smartwatch is the new Fitbit standard form factor, designed to deliver more information and justify higher price points. But it’s clear that Apple Inc. (NASDAQ:AAPL), which shipped 16 million watches last year — compared to Fitbit sales of 15.4 million — is now driving the category.

With Fitbit squarely in the sights of the world’s most valuable company, few are going to notice its purchase of Boston start-up Twine Health. This company’s cloud-based software tracks chronic diseases and connects users with doctors or health coaches, making it the possibly back-end of a system that could be of great interest to large insurers and self-funding health plans.

This purchase shows that Fitbit is trying to get further into health tracking — an area Apple is also interested in.

But getting something like Fitbit into the mainstream of health care still requires Food and Drug Administration approval, and the accuracy of its watches and bands on things like heart rates is still dicey.

The Ionic was signed last year to be paired with a glucose monitor from Dexcom and Fitbit has invested in Sano,  which makes a patch for tracking blood sugar.

For Fitbit, diabetes is the Holy Grail. If it can reach it, it can come back, although likely as an acquisition.

The Bottom Line for Fitbit Stock

A purchase of Fitbit, for the technology, is the main hope investors have today.

Fitbit’s technology has value, and the whole company can probably be snapped up for $1.5 billion, which is chump change for larger companies. Possible buyers could be CVS Health Corp (NYSE:CVS) or United HealthGroup Inc (NYSE:UNH). Both of which would benefit from better compliance and notice of a patient’s coming health problems.

Another possible buyer would be a massive technology company already preparing to enter the healthcare marketAmazon.com, Inc. (NASDAQ:AMZN).

Dana Blankenhorn  is a financial and technology journalist. He is the author of the historical mystery romance The Reluctant Detective Travels in Time, available now at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing he owned shares in AMZN.

Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, available at the Amazon Kindle store. Tweet him at @danablankenhorn, connect with him on Mastodon or subscribe to his Substack.


Article printed from InvestorPlace Media, https://investorplace.com/2018/02/earnings-time-running-fitbit-inc/.

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