Should Investors Consider Fitbit Stock?
It’s not easy being a hardware device maker these days. You could be making a great product, but that doesn’t necessarily mean the business will get much investor attention.
Just take a look at Fitbit Inc (NYSE:FIT) and you’ll see what I mean. The company makes some of the best fitness tracking devices in the business. And yet its stock price performance has been rather disappointing. Trading at just under $3.00 apiece, FIT stock has tumbled more than 40% year to date.
Still, before you remove Fitbit stock from your watchlist, here are three reasons why this $3.00 tech stock could make a comeback.
Large User Base
In the tech world, what’s almost as important as making money is having a large user base. The reason is simple: once a tech company has enough users on its ecosystem, it will likely find monetizing opportunities. For instance, Apple Inc. (NASDAQ:AAPL), which has an active installed base of well over one-billion devices, has a booming services segment.
Fitbit Inc may not be on the same level as Apple in terms of brand reach, but the company has nonetheless built a solid following. According to Chairman, President, and Chief Executive Officer James Park, the company had more than 27 million active users. (Source: “Fitbit, Inc. (FIT) CEO James Park on Q2 2019 Results – Earnings Call Transcript,” Fitbit Inc, July 31, 2019.)
This large amount of users could provide a foundation for Fitbit to offer more value-added services down the road.
Selling More Devices
If you take a look at the Fitbit stock chart, you’ll probably think that no one is buying the company’s devices. But that’s not really the case. In the second quarter of 2019, Fitbit sold 3.5 million devices, which actually represented a solid 31% increase year-over-year. (Source: “Fitbit Reports Second Quarter Results for the Three Months Ended June 29, 2019,” Fitbit Inc, July 31, 2019.)
Moreover, products that were introduced in the last 12 months accounted for 68% of the company’s total revenue in the second quarter. So people are interested in Fitbit’s new products.
For full-year 2019, management expects Fitbit to sell more devices than last year “driven by smartwatch growth.” (Source: “Q2 Earnings Deck,” Fitbit Inc, last accessed August 26, 2019.)
And keep in mind that by selling more devices, Fitbit has a chance to further expand its user base.
Fitbit Health Solutions
For the most part, Fitbit Inc follows a business-to-consumer model. That is, the company sells products and services directly to consumers. But now the company is running a more diversified business model.
I’m talking about “Fitbit Health Solutions,” a segment that is geared toward healthcare providers and enterprises. With Fitbit Health Solutions, the company now also has a business-to-business (B2B) revenue stream.
In the first half of this year, Fitbit Health Solutions’ revenue grew 42% year-over-year to $54.0 million. Moreover, this B2B segment is expected to contribute $100.0 million to the company’s top line in full-year 2019.
Fitbit Inc (NYSE:FIT) Stock Chart
Chart courtesy of StockCharts.com
At the end of the day, I wouldn’t call FIT stock a slam dunk. The consumer electronics business is highly competitive, and there are plenty of companies making wearable devices.
Still, due to the three aforementioned reasons, profit-seeking investors should keep this low-priced tech stock on their watchlist.