Does the FIT Earnings Jump Mean the Stock’s Going to Bounce Back?

FIT watch
Credit:iStock.com/AndreyPopov

Fitbit Stock News

Everyone loves a redemption story. Humans have always been drawn to the idea of a fall from grace and then a rise back to fortune, like a phoenix from the ashes. In the stock market, redemption stories are even more important, as they are often a way to make huge gains. After all, having a premier company lose a ton of value only to gain it back later can be a great way for an investor to have a second chance at getting in on the ground floor, so to speak. That’s why the story developing around Fitbit Inc (NYSE:FIT) and the Fitbit stock price is so interesting. Where some see a chance for FIT stock to rise again via new offerings like the Fitbit smartwatch, others see little reason to hope for a recovery in the Fitbit stock news, despite a rather positive showing in the most recent FIT earnings report.

What’s going to happen—what always happens—is that a few die-hard bulls will praise the company and celebrate whatever move it makes as a return to prominence. Meanwhile, the doubters will conversely claim the company is a wreck and should be avoided like the plague. In this type of polarizing environment, it’s often hard to discern where the truth lies, and that’s the situation we have here with Fitbit stock.

My belief is that, given the evidence we have, there is little reason to hope for a FIT stock price recovery, at least not in the near future. I’ll go further into detail throughout this piece on why I believe that Fitbit is not poised for a comeback—at least it certainly doesn’t appear so considering the current Fitbit stock news. But my overall takeaway is that you have a company that has failed to innovate for a few years now operating in a market that has been taking a beating over the past few years and Fitbit’s answer was…a smartwatch.

Remember, it’s not as if smartwatches are all the rage these days. How many Apple Inc. (NASDAQ:AAPL) “Apple Watches” do you see around? Not many, right? And you have to ask yourself, if even Apple couldn’t breach the market, will Fitbit be able to?

Fitbit Smartwatch

Here’s the thing about the Fitbit smartwatch as it pertains to the Fitbit stock news: it will not be enough to save the company.

Wearables in general are in decline. That much everyone knows. Consider an eMarketer projection that lowered the expected growth of wearable sales from 2015 to 2016 from over 60% in terms of year-over-year sales growth to less than 25%. (Source: “U.S. wearables market is doing much worse than expected,” TechCrunch, December 21, 2016.)

To make things worse, the projections are only continuing to shrink. The whole market is now only projected to grow 21.1% by 2020, hardly the earth-shattering and culturally defining tech that many backers hoped it would be.

Also ReadFitbit Inc: Is Fitbit Stock Back in the Game for 2017?

As I mentioned earlier, even Apple has had trouble breaking into the smartwatch market. Apple fell to fourth place in the smartwatch market after sales declined 71% year-over-year.  (Source: “Fitbit’s up and Apple’s down in IDC’s latest wearable market numbers,” TechCrunch, December 5, 2016.)

And the problem is not with the products individually, but with the market as a whole. Fitbit and other wearable tech companies like GoPro Inc (NASDAQ:GPRO) have essentially hit a wall where only die-hard, perennial early adopters are the ones buying the new products, while new customers are scarce.

Both companies have adopted similar solutions in that they have tried to innovate beyond what their original products offered. GoPro is looking for drones to help boost sales, whereas Fitbit transitioned from wearable fitness gadgets to full-on smartwatches.

But I don’t think either product will be enough to save these companies.

Fitibit saw its market share shrink from 29% to 16%, while Xiaomi Inc has overtaken it by growing from 15% to 17%, losing its prominence in the market. So it makes sense for the company to try to find ways to recapture its place in the market. But nothing seems to be working.

And again, this has to do with the wearable market in general. Smartwatch, fitness aids, and many other forms of tech in this industry have had immense difficulty in finding a wider consumer market. As much as Apple and others touted smartwatches as the logical extension of the mobile tech revolution that began with the smartphone, this reality has not manifested and has in fact been a large loss for a number of companies trying to play in this industry.

That’s my No. 1 apprehension about the FIT stock price: I simply don’t believe the product has mass appeal or staying power. No matter how many quarters they have that may show promise or may signal a return to relevancy, I will remain unconvinced of the power of wearables until I can see with my own eyes that they have in fact penetrated the market in a meaningful, substantive and—most importantly—long-lasting way.

In other words, the Fitbit stock news that the smartwatch is going to rescue FIT stock doesn’t hold water.

FIT Earnings

One of biggest breakthroughs revealed in the recent Fitbit stock news is that the company’s latest earnings report was positive. Well, let me rephrase that. It was still full of losses and declines, but it was better than the industry had predicted, so the stock picked up a bit.

Funny how the market works like that, right? Wouldn’t we all love to come into work and tell our bosses that, yeah, sure, we were unproductive, but your expectations were that we would be even more unproductive, so we should get a raise.

The FIT earnings for Q2 showed that the company reported revenue of $353.3 million from selling 3.4 million devices, above the $341.6 million projected revenue, which is the good news. The bad news is that this was a massive decline from the $586.5 million revenue in the same period last year. They were expected to show losses of $0.15, but only ended up showing a loss of $0.08. Again, last year, the company registered a profit of $0.12.

The FIT stock price hopped up over 15% as a result of these reports, but then of course began to fall back to earth in the next few days.

This has happened before with Fit earnings, when the company beat expectations and took a bump to its share value, only to give it all back a few days later.

So bottom line? It’ll take a lot more than a few half-decent FIT earnings reports to bring this company back from the brink.

FIT Technical Analysis and Conclusion

Is there no hope for the FIT stock price? Is Fitbit stock news all doom and gloom? No and no. There is a chance that Fitbit can be revived and there are genuine reasons to be bullish on the wearable company, but to me, none of those are compelling enough to warrant a run on that track.

Some believe differently than me, and that’s fine. But at the end of the day, I believe that the ultimate failing in the FIT stock price is that the product is simply not something that people want. Until you can solve that problem, I don’t see how the company can claw its way back.

Remember that the share value is now trading at a measly 10% of what it was at its height. These are not confidence-imbuing numbers.

FIT price chart

Chart courtesy of StockCharts.com 

Of course, the buy-low sell-high edict would say that this would be a good time to get in, but then you have to believe that this is Fitbit’s low-point. Looking at the Fitbit stock news, I’m not convinced that it is.

Fit earnings may beat analysts and market expectations and bring on a few days of gains and good cheer, but at the end of the day, I’m firmly bearish on FIT stock. I don’t think the company can justify the value of its shares or convince me that there is a bright future for FIT stock.