Report Good News for FIT Stock
Despite the strong earnings report this weak, Fitbit Inc (NYSE:FIT) stock has tanked to discouraging levels. One downgrade after the other has battered FIT stock on the back of a conservative future outlook. But these downgrades may be a little too far-fetched.
One cannot disagree that the management’s lowered guidance is a little disheartening, but they have strong reasoning to back it up. Let me explain…
For the record, the company has delivered soft guidance for Fitbit’s first quarter of 2016. Now, the company has launched two new products in this quarter—one last month and the other this month.
Both of these products will take some time to end up in the sales channels. By then, nearly half of the first quarter will be gone. At the same time, retailers are clearing out older inventories of the “Fitbit Charge.” Bear in mind that the company has discontinued the Fitbit Charge, replacing it with the two new trackers—the “Fitbit Blaze” and the “Fitbit Alta.”
The off timing will naturally put a dent in Fitbit’s top-line numbers. At the same time, the company will be bearing new manufacturing and marketing costs for these products. Management has hinted at some expensive media launches for the two bands. That will also cut a chunk out of its bottom line.
Overall, however, Fitbit will be expanding its business through this quarter. So even if Fitbit’s first quarter is a little slow, the following quarters may not necessarily be.
In fact, the second quarter might be the company’s strongest yet. This is because of Fitbit’s growing stronghold over the wearable technology industry.
International Data Corporation’s (IDC) latest report on the global wearables market is out and once again, Fitbit has landed the top spot on the leaderboard.
According to IDC, the wearable technology industry grew a solid 127% in the last quarter of 2015, during which an estimated 27.4 million units were sold.
Nearly a third of these were Fitbit wearables!
IDC reports that Fitbit now enjoys a good 29.5% of the market share, beating bigwigs like Apple and Samsung, and even cheaper Chinese competitors like Xiaomi. (Source: “The Worldwide Wearables Market Leaps 126.9% in the Fourth Quarter and 171.6% in 2015, According to IDC,” Business Wire, February 23, 2016.)
The report highlights that innovation remains the top growth driver for competitors in this industry. But at the same time, fashion and design continue to play a defining role.
Fitbit is clearly trying to take a lead in both. The new Fitbit Blaze is focused on innovation and competes with high-end smartwatches, like the “Apple Watch.” Comparatively, Fitbit Alta is a more fashion-forward band, primarily designed for women looking for a chic-looking fitness tracker-cum-jewelry accessory.
The Bottom Line on FIT Stock
The wearables industry is maintaining its stellar triple-digit growth. IDC reports that the mass market for fitness wearables still remains largely untapped in terms of adoption. This grants the industry players massive room to grow. The biggest winner will naturally be the industry leader that enjoys the strongest brand recognition. In this case, that leader is Fitbit stock.
Past the first quarter, I’m seeing strong growth in Fitbit, as the company continues to innovate and expand.
Long story short, FIT stock could be a promising hold for the long haul through 2016 and beyond.