Fitbit Inc (NYSE:FIT)
Reports on Fitbit Inc (NYSE:FIT) have lately been a mixed bag. The company posted an expected loss figure for Q1 2017 but revenues beat street expectations. On the other hand, new research indicates that the company is losing market share to behemoth Apple (AAPL) at an increasing rate. The Thursday earnings announcement sent shares gapping up to open Thursday’s trading session, but since those morning trades FIT shares have slid backwards, but are still around 8% above Wednesday’s close.
On Thursday morning, Fitbit Inc (NYSE:FIT) announced a per share loss of (-$0.27) for a total net loss of $60.1 million – which was in line with analyst expectations. The company did surprise the street by beating revenue expectations by around $12.5 million. However, revenues told the larger story. Q1 2017 revenues came in at $298.9 million. Compare that figure with Q1 2016’s revenue of $505.4 million which represents a YoY loss of over 40%. On the earning’s conference call, Fitbit management highlighted some cost efficiency and cutting-measures that they hope will filter through to the bottom line. These efforts will be in the form of a realignment into two core business units – Consumer Health & Fitness (CHF), and Enterprise Health. CHF will focus on delivering a higher quality device that offers premium software and services. Enterprise Health will focus on developing and forming tighter relationships with companies, their employees, insurance companies, healthcare systems, and healthcare partners. However, in spite of these efforts, many observers believe that a revenue growth rate that is continuously trending negative will be hard to overcome.
Competition leads the list of investor worries over the future of Fitbit Inc (NYSE:FIT). Strategy analytics, a research firm, released a report on Thursday claiming that Apple captured the #1 position in the sector’s market share with 15.9%. Xiaomi, a Chinese product, was #2 with 15.5%, and Fitbit was #3 with 13.2%. In Q1 2016 Fitbit Inc (NYSE:FIT) held the #1 spot with 24.7%. Apple’s growth is primarily due to the sales growth of the Apple Watch which reportedly doubled shipments and sales YoY. Fitbit Inc (NYSE:FIT) is working on a smartwatch that would go head-to-head with Apple’s offering. While few believe that Fitbit can beat Apple at the smartwatch game, it is conceivable that a more cost sensitive offering could gain some sustainable market share.
Analysts are indecisive about the future of Fitbit Inc (NYSE:FIT). Two firms that follow the company give FIT shares a “Strong Buy” rating and two give the shares a “Buy” rating. However a whopping 13 give FIT shares a “Hold” rating while just one rates FIT as a “Hold”. One noteworthy observance is that in Q4 of 2016, a total of nine firms downgraded FIT shares while just one upgraded the shares. YTD Fit shares are down 16%, while they are down over 55% for the year. The company does have an unusually large short position going against it – fully 37.5% of its shares, as represented by the float, are being borrowed for short selling.
I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. All information, or data, is provided with no guarantees of accuracy.
About the author: Steve Clark is a 23-year Wall St professional with stints in M&A, risk management, and algorithm trading.