The Big Problem for Fitbit
It’s been a tough year for Fitbit Inc (NYSE: FIT). Not only did the Fitbit stock price lose more than half its value in the last 12 months, but its main rival went belly up. While that may seem like a positive step (who doesn’t want their competitor to go bankrupt?), investors are viewing it as an ominous sign for the wearables market.
Are they right to worry? Maybe.
Hardware companies like Fitbit haven’t worked out lately. GoPro Inc (NASDAQ: GPRO) is a case in point. The action camera-maker went from making $128.09 million in 2014 to losing $419.0 million in 2016.
Fitbit might be caught in the same trap. Not that Fitbit is identical to GoPro, but their business models are roughly the same. Both companies manufacture electronic devices for a specific purpose.
The only reason you want a GoPro is to capture some sort of expedition or stunt. Likewise, Fitbits are only meant for daily exercise and health tracking.
You don’t bring a GoPro to an art gallery, for instance. It isn’t the kind of camera that lends itself to creative still photography, or many other types of photography, for that matter.
In much the same way, you don’t use a Fitbit for reading the news or sending emails. The device isn’t really intended for those uses, because it is an exercise device.
These niche items are simply not a priority in today’s world.
Think about it from the ground level. There are so many devices that consumers feel obligated to buy. Most people have a smartphone, tablet, and personal computer…and they feel the need to upgrade every two years! It takes quite a bit of money to maintain this technological armory.
An “iPhone 7” costs $800.00 an “iPad” costs $500.00, and a “Macbook Air” costs $1,200. So in order for you to be fully equipped (by today’s standards), you have to spend $2,500 every two years.
It is an awful lot of money to spend on electronics, yet most people can rationalize the expense because the gadgets are so useful. They do so many things. Whereas niche items do not have a wide range of capabilities, so they slip further down the priority list.
This is essential to Fitbit’s predicament.
How to Save the Fitbit Stock Price
If only a handful of fitness nuts are willing to pay for standalone fitness trackers, then FIT stock is doomed. I’m obviously not the only one to realize this—just look at the trend line in the Fitbit stock price over the last two years. It looks like something out of a nightmare.
Chart courtesy of StockCharts.com
I think it’s safe to say the market is bearish on FIT stock. Expectations are extremely low, which I suppose is a silver lining. No one expects anything from the wearables market any more, nor do they think that Fitbit sales growth will magically regenerate. So the pressure is off.
Fitbit can take advantage of the low expectations by shopping around for a buyer. A serious acquisition offer would likely come at a significant contrast to the current Fitbit stock price of $5.76.
Think about it: Why would anyone choose a Fitbit smartwatch over an Apple Inc (NASDAQ: AAPL) smartwatch? The whole point of a smartwatch is to extend the reach of your smartphone. Does anyone really expect Fitbit to compete with Apple on anything related to smartphones? Seriously?
Fitbit doesn’t have comparable expertise (unless it made a secret smartphone no one knows about). It doesn’t have comparable resources (Apple has more money than most countries). And it doesn’t have nearly as strong a brand as Apple (who does, really?).
I’m aware that Fitbit had extraordinary success with activity trackers, but its biggest competitor in that space was Jawbone. Apple is a different beast. It is an 800-pound shark that devours companies like Fitbit for breakfast.
There’s only one solution that I can see. Fitbit should find itself another 800-pound shark to partner up with. Perhaps Amazon.com, Inc. (NASDAQ:AMZN). Only with a giant technology firm like Amazon does the Fitbit smartwatch stand a chance.
Plus, Amazon’s “Alexa” software has been incredibly successful for the home speaker market, so Fitbit could act as an extension of that ecosystem. This is just my opinion, but I think an Amazon-Fitbit merger would be beneficial to both sides.
Fitbit Sales Growth Shows Time Is Running Out
I hope that Fitbit starts looking at offers sooner rather than later, because its fundamentals are not looking good. We tracked Fitbit’s sales growth over the last few years and…well, the chart speaks for itself.
These data points are not cherry-picked or manipulated in any way. They are drawn straight from Fitbit’s quarterly reports. Interestingly, the numbers moved further from the spotlight as they grew worse and worse.
First they were in bold at the top of the report, then they were tossed into the headline, hidden under the consolidated financial statements, and broken up into geographical-based categories. I’m not judging; I’d want to bury these numbers as well. They tell such a clear story of decline.
That said, the market is fully aware of this decline. Investors have punished the stock thoroughly, and since there is little chance of Fitbit beating Apple in the smartwatch game, I think a merger is the only chance for FIT stock to rebound.