Why Garmin Stock Has More Upside Than Fitbit Inc

Garmin stock
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Garmin Stock Forecast

Garmin Ltd. (NASDAQ:GRMN) and Fitbit Inc (NYSE:FIT) both recently posted solid third-quarter numbers that beat Wall Street expectations. Both of their share prices have also rebounded from the market’s broad-based sell-off. But one is in a much better position than the other.

While investors may be more attracted to Fitbit because it is trading near $6.30 per share compared to Garmin, which is currently trading at $65.00 per share, Garmin’s stock forecast remains much more bullish.

Garmin Ltd.

A little background on each company is in order. They may sound like they do similar things, but they’re quite different.

Switzerland-based Garmin Ltd. designs and manufactures a wide range of GPS navigation and wearable communication and information devices that serve the automotive, aviation, marine, outdoor, and fitness markets.

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Fitbit Inc

San Francisco-based Fitbit brands itself as a global wearable brand, with fitness related devices, including the “Fitbit Surge,” “Fitbit Blaze,” “Fitbit Charge 2,” “Alta HR,” “Alta,” “Fitbit Flex 2,” “Fitbit One,” and “Fitbit Zip” activity trackers; “Fitbit Ionic” smartwatches; “Fitbit Aria 2” Wi-Fi smart scales; and a range of accessories.

While Fitbit has a large number of wearable products, it’s not nearly as diversified along as many markets as Garmin is. Instead, some investors might say Fitbit is streamlined, or more focused.

Wearable Market Share

The only place where Garmin and Fitbit are rivals is in the wearables market.

Fitbit is the third-largest wearable maker, with 9.5% of the market share, while Garmin is a distant fifth, capturing 5.3% of the global market.

Apple Inc. (NASDAQ:AAPL) leads the wearables market industry with a 17% share while Xiaomi Corp (HKG:1810) is a close second at 15.1%.

Company Second-Quarter Market Share
Apple 17.0%
Xiaomi 15.1%
Fitbit 9.5%
Huawei 6.5%
Garmin 5.3%

(Source: “Worldwide Wearables Market Ticks Up 5.5% Due to Gains in Emerging Markets, Says IDC,” IDC, September 4, 2018.)

During the second quarter of 2018, Garmin advanced in the ranking, taking away the fifth spot from Samsung Electronics Co Ltd (OTCMKTS:SSNLF, KRX:005930).

Garmin’s second-quarter worldwide shipment volume of smartwatches grew over its basic wearables, further underscoring the growing demand for smart wearables over basic wearables.

During the quarter, Garmin saw sales increase with its fitness-oriented “Vivo” line and the launch of its new golf-centric “Approach S10” line (watch, laser finder, club tracker, etc.).

Fitbit, meanwhile, struggled in the second quarter, relying on its basic wristband sales to help fuel growth. That said, the company’s newly launched “Versa” (health and fitness smartwatch) helped it expand its user base.

Fitbit is also one of the only original equipment manufacturers (OEMs) that continues to target the commercial market, and, is a leader in this space. In fact, next to Apple, Fitbit is the second-largest smartwatch maker in the U.S.

Keep in mind, Garmin and Fitbit have markedly different business models. Less than half of Garmin’s revenues come from wearable devices compared to Fitbit, which gets almost all of its revenue from wearable devices.

But, as you will see, Fitbit’s sales and revenue growth isn’t nearly as impressive as Garmin’s comparable sales growth.

Garmin vs. Fitbit Earnings

Garmin Ltd.

On October 31, Garmin announced its financial results for the third quarter ended September 29, 2018.

Third-quarter revenue advanced eight percent year-over-year to $810.0 million. During the quarter, marine, aviation, fitness, and outdoor sales collectively increased 16% over the same prior-year period and contributed to 80% of total revenue. (Source: “Garmin reports third quarter revenue and earnings growth; updates EPS guidance for 2018,” Garmin Ltd., October 31, 2018. )

Garmin’s auto unit is the company’s second-largest market, accounting for slightly more than 20% of its revenues. But its market share has been declining, being usurped by the rising use of smartphone navigation apps and GPS systems.

Solid revenue growth also shows that Garmin is making up the loss in auto market revenue with strong growth in its other segments.

Third-quarter net income increased 21.9% to $814.2 million, or $0.97 per share.

Markets Third-Quarter Revenue Year-Over-Year Growth
Total Sales $810.0 million 8%
Marine $98.8 million 28%
Aviation $146.4 million 17%
Fitness $190.2 million 14%
Outdoor $209.4 million 13%
Auto $165.2 million -16%

(Source: Ibid.)

In late August, Garmin announced that it acquired Flight Plan LLC (FltPlan) a leading electronic flight planning and services provider, including the web site FltPlan.com and mobile application “FltPlan Go.” (Source: “Garmin acquires FltPlan.com, a leading electronic flight planning and services provider,” Garmin Ltd., August 29, 2018.)

FltPlan is one of the largest flight planning companies in the world, creating more than 6.3 million flight plans annually. It helps expand Garmin’s ability to offer flight services to its customers.

Subsequent to the end of the third quarter, Garmin announced it opened the first phase of its $200.0-million expansion at its North American headquarters in Olathe, Kansas. The new 747,945-square-foot warehouse and manufacturing facility more than doubles its aviation product manufacturing capacity.

Phase two of the expansion is expected to begin in the second quarter of 2019. Once completed, it will have 2.25 million square feet of space and room for an additional 2,600 associates.

At the same time, Garmin announced that it reached an important milestone, selling more than 200 million of its GPS navigation and wearable technology products. Just six years earlier, Garmin sold its 100 millionth product.

Its newly expanded headquarters will help Garmin continue to reach new sales and revenue milestones.

Fitbit Inc

On October 31, Fitbit also announced its financial results for the third quarter ended September 29, 2018. Third-quarter revenue was up marginally (0.03%) at $393.6 million, compared to $392.5 million in the same quarter last year. (Source: “Fitbit Reports Third Quarter 2018 Results,” Fitbit Inc, October 31, 2018.)

James Park, Fitbit co-founder and CEO, made a point of saying that revenue from healthcare customers increased by 26%. What it increased to the company has not said, but the healthcare business includes sales of Fitbit’s wearable devices, software, and services.

On top of that, smartwatch revenue grew to 49% of revenue from less than 10% a year ago.

That strong double-digit revenue growth helped the company report increased revenue year-over-year, even if it was just 0.03%.

It also helped reverse the company’s revenue slide from the first half of the year. For the nine months ended September 29, revenue slipped 6.7% year-over-year to $940.7 million.

In the third quarter, Fitbit reported a loss of $2.0 million, or $0.01 per share, a marked improvement over the loss of $113.4 million, or $0.48 per share in the same prior-year period.

Desperate for good news though, investors celebrated the barely-there sales growth, sending Fitbit’s share price higher. After hitting an all-time low of $4.23 on October 29, Fitbit shares increased 6.6% on Wednesday, October 31 and another 35% on November 1, to $6.20 per share.

Fitbit’s share price continued to climb over the coming days, hitting an intra-day high of $6.40 per share on November 6. That represents a 51% increase over the October 29 all-time low of $4.23.

Analyst Take

If you like an underdog story, then Fitbit is your answer. If you like a company that reports consistent sales growth and earnings, you might want to pay closer attention to Garmin.

Even after the market sell-off in October, Garmin’s share price is still up more than 15% since the start of the year. It also provides an annual dividend of 2.12%.

Fitbit on the other hand, even after rebounding from the October sell-off, is up just 0.9% since the start of 2018. And that gain is only a result of investor euphoria after posting decent third-quarter revenue.

Who knows how long that excitement will last; investors aren’t known for their patience. Fitbit also doesn’t provide a dividend.

When it comes to operations, not only does Garmin serve a broad number of international markets, but it also has a massive number of products on offer. This allows Garmin to compete more broadly and insulate itself against other smartwatch giants like Apple and Xiaomi.

The same cannot be said, perhaps just yet, for Fitbit. It is, on the surface, a one-market wonder and may not be able to outrun the likes of Apple.