Why Fitbit Is Hurting
Fitbit in need of a reboot
Fitbit’s (FIT) deal with the Minnesota Timberwolves and the recent launch of its flagship smartwatch, Fitbit Ionic, are closely watched developments for the simple reason that the market believes the company’s sales need a strong reboot.
It’s been a long time since investors had news of sales growth at Fitbit, and rising competition in the wearable tech industry hasn’t helped calm Fitbit investors.
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Sales fell 39.8% amid tough competition
In 2Q17, Fitbit continued its streak of sliding sales. The company reported revenue of $353 million in 2Q17, which was down 39.8% from 2Q16 despite topping consensus estimates. In the prior quarter, sales fell 40.8% year-over-year.
The sponsorship deal that Fitbit inked with the Minnesota Timberwolves holds a lot of promises for the company, and the market is waiting to see if it will help transform the company’s performance. With its Ionic smartwatch, Fitbit may slow down or halt its loss of wearables market share to Apple (AAPL) and China’s Xiaomi.
$25 billion in the wearables market
If Fitbit hits a breakthrough with Ionic, it could see a significant boost to its revenues, considering that smartwatches represent one of the more vibrant segments of the wearable device market. Other than Apple and Xiaomi, Fitbit competes with Samsung (SSNLF) and Garmin (GRMN) in the smartwatch market.
According to market analytics company CCS Insight, the global wearables market will be worth $25 billion by 2019, implying enormous revenue potential for Fitbit in this market. According to research firm IDC, 125.5 million wearable devices will be shipped globally this year, and the number will rise to 240.1 million devices by 2021. The chart above illustrates this growth.