In the 10-K for Fitbit Inc (NYSE:FIT), the company notes: “We believe our future success depends on our ability to develop new products and features that expand the versatility and performance of our existing platform and we plan to continue to invest significant resources to enhance performance, functionality, and convenience and style for our users.”
This is certainly very true. But there’s a problem: FIT has failed miserably to execute on the vision. The fact is that there has been a breakdown of the product development process.
And this should be downright scary for holders of Fitbit stock. Wall Street investors and short sellers have mercilessly pounded the shares over the past year. FIT stock is off about 88% since the peak.
The irony is that the company has poured substantial resources in its R&D efforts. From 2014 to 2016, spending spiked from $54.2 million to $320.2 million.
But as seen with the performance last year, FIT hasn’t put this money to effective use. During the holiday quarter, the company saw its revenues plunge a grueling 19% to $573.8 million and the number of devices sold went from 8.2 million to 6.5 million. FIT also reported its first net loss as a public company.
This came despite the fact that it launched four new devices. But unfortunately, they really did not show much improvement in functionality and innovation. In the meantime, there has been a rush of competition to the market. Just some of the fierce rivals include Apple Inc. (NASDAQ:AAPL), Garmin Ltd. (NASDAQ:GRMN), Samsung Electronics (OTCMKTS:SSNLF), Xiaomi and Microsoft Corporation (NASDAQ:MSFT).
There are also plenty of low-cost operators, which rely on the pervasive Android system from Alphabet Inc (NASDAQ:GOOGL,NASDAQ:GOOG).
In light of all this, is it any wonder that Fitbit stock has gotten crushed? Of course not.
What Now For Fitbit Stock?
For the most part, the problems with product development are far from over. According to a report from Yahoo Finance, the FIT smartwatch as well as the Bluetooth headphones are expected to be delayed until the fall.
Some of the issues include complications with the GPS system and water resistance. Granted, the engineering of small devices is no easy feat. But let’s face it, GPS has been around for a long time. So with all the technical talent at FIT, why is this a problem?
As for the water resistance, this is probably an engineering challenge as well. But then again, this capability is not necessarily new either. More importantly, a smartwatch really needs to be water resistant.
The delay of the smartwatch also means that it will likely come out when the new version of Apple’s Watch — which will be on its third generation — is expected to hit the markets. In other words, FIT’s offering is likely to have a tough time rising above the marketing noise.
Bottom Line on Fitbit Stock
The bulls for FIT stock point out that the company has the opportunity to take a piece of the lucrative e-health market. Yet there should be some caution. The fact is that it can take a long time to get a product approved. Besides, with all the problems with the consumer products, might healthcare companies be skeptical of FIT?
I think so.
So all in all, there are really few catalysts that can get Fitbit stock back on track — that is, unless there is a buyout. But considering the deep issues plaguing FIT, this may not be likely either.
Tom Taulli runs the InvestorPlace blog IPO Playbook as well as OptionExercise.com, which provides interactive tools & services for employee stock options of pre/post IPO companies. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.
