Here’s Why the Bears Are Wrong on FIT Stock
Fitness tracking wearables leader Fitbit Inc. (NYSE:FIT) may have hit a rough patch that’ll last through the end of this year, but a recent string of good news makes me optimistic about Fitbit stock in 2016.
Let’s begin by rewinding to the last month, during the Black Friday season, when all big retailers indicated strong sales for Fitbit bands—worth a mention are Target and Best Buy, both of which reported Fitbit bands to be top sellers. “Fitbit Charge” was, in particular, a door-buster.
But apparently, Pacific Crest analysts were not satisfied. Last week, they decided to run an inventory check on some of the big retailers to truly gauge Fitbit’s sales. Turns out, sales have further exploded post-Black Friday. (Source: “Fitbit (FIT) Holiday Sales ‘Exploding’, Says Pacific Crest”, Street Insider, December 21, 2015.)
In terms of market share, Fitbit is a clear winner in the wearables industry, which is witnessing massive triple-digit growth year-over-year. Fitbit’s fitness tracking bands enjoy the top spot on the leaderboard, followed by those made by Apple and Xiaomi. But what grants Fitbit this dominance?
How Fitbit Maintains its Dominance
The way I see it, Fitbit’s success has been, in part, because of the company’s very aptly devised pricing strategy, with a further boost from management’s ingenious marketing strategy.
Beginning with pricing, Fitbit trackers offer the most favorable price. These trackers are neither so expensive that the masses are unable to afford them nor so cheap that they lose their brand value.
Ranging between $100.00 and $180.00, Fitbit bands offer a reasonable price point for fitness enthusiasts coming from all walks of life. Compare this to “Apple Watch,” with the cheapest model starting at $350.00 and the most expensive hitting around $600.00, becoming unaffordable for most teenagers and younger professionals. Xiaomi’s “Mi” bands, on the contrary, are priced around $20.00, but are often cited by trainers as low quality for their cheaper value (even if we assume that to be untrue).
On the marketing side, Fitbit has come up with a corporate wellness program, whereby it partners with big corporations in an effort to instill the spirit of wellness in their employees. Through this program, the company is able to drive sales by selling its product in bulk. Thus, even if direct-to-customer sales falter, this side of the business can provide reasonable support.
To put this premise into better perspective, take the example of GoPro, Inc. (NYSE:GPRO), another hip player in the wearables industry, albeit wearable cameras.
GoPro’s pricing strategy has been a flop and an inadequate marketing strategy has made matters worse for GPRO stock. GoPro’s management cut the price of their newest “Hero4 Session” camera not once, but twice within six months of its launch. Clearly, management did not do their homework on their target market before pricing their products, thus killing their brand value. Plus, the marketing campaign, as the management itself has acknowledged, has also been underfunded and inadequate.
Bottom Line on FIT Stock
Virtually none of the “unicorns” that debuted on the market this year have proved to be successful investments, but Facebook, Inc. (FB:NASDAQ) wasn’t either in the first year of its IPO. Fast forward three years and FB stock has more than doubled. Fitbit, too, may have gotten hammered by the shorts in its short year-to-date run, but its long-term prospects are still reassuring.
Fitbit is an evident leader in the fitness tracking wearables industry, and a clear winner of the recent holiday sales season. All it needs is to keep innovating to remain relevant in the industry. A healthy sign is that management has been investing on R&D; a positive signal that they are serious.
In a nutshell, FIT stock looks like a promising bet at current lows.