When you consider what health and fitness tracking company Fitbit Inc (NYSE:FIT) has been through over the past few years, the company has had a pretty great week so far. With news breaking about a new strategic partnership and a Q1 earnings beat, you would think that FIT stock would be on the rise.
However, just the opposite is true for FIT.
Google Partnership
On Monday, Fitbit announced that it would be partnering with Alphabet Inc (NASDAQ:GOOGL) to dig deeper into digital healthcare. The two will work together in order to connect Fitbit user data with medical records through Google’s Cloud Healthcare API.
The partnership will give medical professionals better insight into their patients and allow for more thorough tracking of chronic conditions.
The move is a huge step forward for Fitbit as the firm works to ingrain itself into the healthcare space. The firm also recently acquired Twice Health, a healthcare platform that similarly connects doctors with patient data.
Following the news, FIT stock made its way 5% higher, but most of those gains quickly evaporated in the days that followed.
Why It Doesn’t Matter
On some level, the Google partnership is a plus for FIT stock, but in the grand scheme of things it doesn’t really change the narrative for Fitbit. The company makes wearables, not medical devices. So although tying the devices in to the healthcare space does make sense, it’s unlikely to make Fitbit sell more trackers.
Doctors might find the user data helpful, but the fact that Fitbit health trackers aren’t completely accurate and haven’t been certified as medical devices means there’s a definite grey area when it comes to including that data into treatment plans.
The accuracy of the devices has a long way to go before they can become a real asset to medical professionals and until then initiatives like this one are unlikely to propel the company forward.
Earnings Beat
Another nugget of good news came for Fitbit on Wednesday when the firm beat expectations with its first quarter results. The firm reported a loss of 17 cents per share on revenue of $247.9 million, compared to expectations for a loss of 20 cents per share on revenue of $247.3 million.
Again, the results initially gave Fitbit Inc. stock a lift, but the rise was only temporary. The stock was down nearly 5% in premarket trading on Thursday morning.
Why it Doesn’t Matter
The Fitbit stock earnings beat did very little to assuage investors’ concerns about the company’s future because management’s forward guidance confirmed what most had been expecting- Fitbit will struggle again this year.
Earnings and revenue for the second quarter is expected to come in below where analysts had been prediction and demand is likely to remain sluggish. In the first quarter the firm sold 2.2 million devices, down from the year-ago quarter when it pushed 3 million.
Fitbit’s Future
Fitbit is simply another case where being first doesn’t necessarily make you best. The firm’s activity trackers were a hit when they came to market because people hadn’t seen something like this before, but now that all of the big tech firms are coming out with their own flashier versions Fitbit is falling by the wayside.
FIT management has made a valiant effort to save the company from joining the ranks of BlackBerry by making a move into smart watches, but unfortunately it looks like Fitbit is doing too little too late. Why buy a Fitbit smartwatch when you can buy one already integrated with your current mobile phone’s ecosystem?
The Versa, Fitbit’s latest smartwatch hasn’t been able to make much impact on the firm’s bottom line because most people still think of Fitbit as an activity tracker, not a smartwatch.
Activity trackers still make up the majority of the firm’s revenue, but as smartwatches become more and more health-centric they are becoming obsolete. Sure, Versa has gained some traction but competing against giants like Samsung and Apple Inc. (NASDAQ:AAPL) has hurt its chances of success.
The Bottom Line
FIT stock is unlikely to make any real progress unless the company gets acquired. The company looks unlikely to break into the smartwatch space in a meaningful way and when dedicated activity trackers go the way of the dodo, the firm will struggle to stay afloat.
As of this writing, Laura Hoy was long AAPL.
