So far in August, Fitbit stock continues to burn investors’ wealth.
Fitbit stock has fallen in August
Fitbit (FIT) stock has fallen more than 25.0% in August. The stock is trading at $3.10 per share, which is 56.0% below its 52-week high of $6.96. If you think that’s bad, Fitbit has burned 93.5% of investors’ wealth since August 2015.
Has Fitbit stock bottomed out? Should investors take a risk and invest in Fitbit? Investing in Fitbit would be a massive risk with limited upside potential. Fitbit continues to struggle in the high growth wearable market. According to the IDC, global wearable shipments rose 55.2% year-over-year to 49.6 million units in the first quarter.
In the smartwatch segment, the second-quarter shipments rose 43.6% YoY to 12.3 million. Fitbit’s smartwatch growth was far lower. In fact, Fitbit’s smartwatch shipments fell to 1.2 million units in the second quarter from 1.3 million units in the second quarter of 2018.
Fitbit battles with tech giants
The company has lost a massive share in the wearables market. Fitbit used to be the market leader in the wearables segment. However, the arrival of tech heavyweights like Apple, Samsung (SSNLF), Xiaomi, and Huawei caused Fitbit’s sales to fall. These companies have massive cash reserves to spend heavily on research and development. They’re also able to allocate significant resources to sales and marketing.
Fitbit has tried to launch new devices and decrease product prices. However, the company lost market share in the last few quarters, which drove the stock to all-time lows. In the second quarter, Fitbit sales were impacted by lower-than-expected Versa Lite sales.
Fitbit attributed the lower Versa Lite sales to its pricing go-to-market strategy. CEO James Park said, “Versa Lite sales did not meet our expectations, leading to a contraction of quarterly smartwatch revenue growth. We subsequently reduced our Versa Lite sales expectations for the remainder of the year and are lowering our full year 2019 revenue and gross margin guidance. We attribute the Versa weakness to our pricing go-to-market strategy.” He also said, “We added Versa Lite to our product lineup in Q1, the intention of lowering the barrier to entry for consumers to purchase a quality smartwatch with certain core features and shifted to an everyday low-pricing strategy from a promotional.”
As a result, the company revised its guidance. Fitbit slashed the revenue estimates for the third quarter and 2019. The stock lost close to 20.0% on August 1.
Fitbit’s Health Solutions business
Although Fitbit’s sales rose 5.0% to $314 million in the second quarter, it didn’t help investors’ confidence. Fitbit might change the pricing and promotional tactics that haven’t been successful.
Fitbit is also banking on the Health Solutions segment to drive sales. The Health Solutions segment is Fitbit’s premium subscription service. The segment helps Fitbit diversify revenues. Notably, the segment is a high margin business. Fitbit’s Health Solutions segment might lead to higher customer engagement. The segment’s sales rose 16.0% in the second quarter. The Health Solution segment’s revenues rose to $24 million and accounted for 7.6% of the total sales. Fitbit expects the segment’s sales to reach $100 million in 2019—42.0% growth YoY.
Currently, the business is too small to move the needle. However, there’s significant potential in the Digital Health segment. The company will need to focus on partnerships and research studies to gain traction and the medical community’s confidence.
Fitbit stock still isn’t profitable
Fitbit is still posting a non-GAAP loss. While the company expects to lower its operating expenses 9.0% this year, it will also need to look at strategies to expand the top line. Fitbit’s smartphone shipments fell 27.0% YoY. The fall was offset by healthy growth of 51.0% in tracker shipments. Does Fitbit focus on fitness trackers?
There are too many uncertainties clouding Fitbit. We warned investors to stay away from the stock. Since then, the stock has fallen close to 30.0%. Fitbit stock has fallen more than 5.0% today. Will Fitbit go below $1 in the next year?
Market Realist analyst Aditya Raghunath doesn’t hold Fitbit shares.