Fitbit, Inc. (NYSE:FIT) crashed almost five percent on Thursday as analysts continue to cut back expectations for its third-quarter results next week. FIT stock went public only four months ago but the stock has witnessed very volatile trading ever since, peaking at the $50.00 range and then dropping to the $30.00s within a month. Fitbit stockholders want to know if Fitbit bands are just a fad that will eventually fade away or something that they can count on to deliver returns in the long run.
Competition is the greatest problem posed to Fitbit’s long-term survival in the fitness bands industry, with similar products like Microsoft Band, Samsung Gear, Garmin VivoActive, and Apple Watch, to name a few, clawing at Fitbit’s market share. Fitbit may have a good product—no, a great product—but its competitors are coming out with the greatest products.
Will Fitbit Even Be Around in Five Years
If Fitbit wants to survive, its only moat will be its brand recognition. A great way Fitbit can maintain dominance in the industry is by partnering with celebrities, fitness trainers, and nutritionists who can help promote the product in the broader health and wellness industry.
Fitbit’s “first mover advantage” has blessed it with a fan following that other brands don’t enjoy yet. Fitband bands became a ubiquitous way before other big names jumped into the arena. Additionally, its sole focus on fitness tracking has given it a better appeal amongst fitness trainers who find its longer battery life a more promising feature than the fancier Apple Watch and Microsoft Band.
Fitbit’s immediate competitor, Garmin Ltd. (NASDAQ:GRMN) reported its disappointing earnings on Wednesday. The fact that Garmin did not give away any solid figures on sales of its fitness tracking devices confirmed its product’s weakness. Garmin also guided down the next quarter revenue from its fitness products, citing a pressure from competitive forces. Apple too remained reluctant giving away numbers on the Apple Watch in its latest earnings call. The executives mentioned that the watch contributed to “Other Revenue” but by what amount, was left to the investors’ imagination.
This could indicate Fitbit’s growing strength in the market against its competitors, but this could also point to slowing demand in this industry, should Fitbit, like Garmin, miss earnings next weak. Ultimately, Fitbit’s success depends, more than anything, on its brand recognition and popularity amongst the young and old alike.
Fitbit boasts solid margins, a strong cash position and no debt burden on its balance sheet. But the fact that almost half of FIT stock’s float is short just shows how negative the general investor sentiment on Fitbit stock is.
When I consider a company for investment, one of the barometers I gauge it on is whether the company is good enough to stick around 10 years down the road. I have faith in Warren Buffett when he says his “favorite holding period is forever.”
The Bottom Line on FIT Stock
The fact that Fitbit has a complete reliance on its sole product puts its long-term survival in the wearable fitness devices industry at risk, as the company essentially doesn’t make anything other than its fitness bands. The only way FIT stock can beat the market is if Fitbit holds on to its brand appeal, if it continues its hardware innovation and if it keeps integrating supporting software features that appeal to its users’ preferences.
All these ifs make me skeptical about its long-term success. I believe FIT stock will be long forgotten in a few years.