Fitbit (NYSE:FIT) stock sunk following the release of the newest watch from Apple (NASDAQ:AAPL). Fitbit stock has lost almost 90% of its value over the last three years. With Apple adding more features offered by Fitbit to the iOS ecosystem, I see a bleak future for Fitbit stock.
The New Apple Watch Prompted Selling of Fitbit Stock
Fitbit stock plunged 6.9% in Wednesday’s trading. Apple drove this plunge with the release of its Apple Watch Series 4. The latest version of Apple Watch assesses additional areas of people’s health. It can detect hard falls that might occur during a run. The device can also monitor users’ hearts, going so far as to take an electrocardiogram and detect atrial fibrillation. And yes, those features have been approved by the FDA.
Apple Watch Series 4 moves Apple closer to rendering Fitbit’s products obsolete. As I pointed out in a recent article about wearables, Fitbit lacks the ecosystem that Apple and Alphabet (NASDAQ:GOOGL,NASDAQ:GOOG) possess. Assuming most consumers adopt Apple and Android watches, there is little room for Fitbit. Given this reality, the only market available to Fitbit consists of customers who want to monitor their movements but do not want to buy a higher-priced Apple Watch or the Android equivalent.
Even if Fitbit could compete on product offerings, the financial picture for FIT stock appears to be troubled. Fitbit has a market capitalization of $1.35 billion but is expected to lose money through at least 2021. Such a competitive disadvantage leaves Fitbit with fewer options for raising money. Moreover, I doubt a tenuous hold on the low-end segment will enable this company to become profitable.
Could Fitbit Recover by Focusing on Niche Segments?
The one glimmer of hope for holders of Fitbit stock lies in the story of Garmin (NASDAQ:GRMN). Garmin once traded as a high-flying tech stock, with its share price peaking at over $125 in 2007. However, when consumers saw that the iPhone would render Garmin’s standalone GPS unit obsolete, GRMN stock plunged.
Garmin recovered by finding niches. Its GPS systems for skiing and boating appealed to enthusiasts of those activities. Their interest allowed GRMN to stay in business. While GRMN stock trades at just a little over half of its 2007 high, the shares have generally moved higher since 2009. Still, it appears that the latest Apple Watch will compete more effectively with Garmin. As a result, even Garmin’s moat is threatened by Apple.
Also, GRMN stock has held up better than Fitbit stock. Even at the height of the financial crisis, GRMN only fell briefly below $15 per share before moving higher. FIT stock now trades in the $5.50 per share range.
Unfortunately, I do not believe that Fitbit is as creative as Garmin. Yes, Fitbit has developed some compelling products. However, the iOS and Android ecosystems have become technology’s Swiss Army knives. Now that these “knives” have added more benefits for wearables, I see nothing coming from Fitbit that fits the description of a moat. Without such a moat, Fitbit stock, and possibly Fitbit itself, will struggle to survive.
The Bottom Line on Fitbit Stock
The improved Apple Watch leaves little room for FIT stock to gain traction. Now that the Apple Watch can monitor actions such as falls and heart activity, Fitbit finds itself competing with two companies whose market caps are each more than 500 times the size of Fitbit. FIT could follow Garmin’s example and find niches that are of little interest to smartphone and smartwatch makers. However, FIT appears to lack the creativity needed to make such a strategy succeed. Fitbit stock will not be rescued by FIT’s focus on the low-end market. Such a strategy may not even save Fitbit itself.
As of this writing, Will Healy did not hold a position in any of the aforementioned stocks. You can follow Will on Twitter at @HealyWriting.