In Focus: Fitbit
Thanks for checking out this week's In Focus, our look into a company, companies, or markets that made the Wall Street news cycle. This week we bring Fitbit into focus.
Them: Behold, we have invented the devices of all devices.
Me: What is it?
Them: A fitness tracker.
Me: What does it do?
Them: It tracks fitness, and it will make the unfit want to get fit, the fit fitter, and the fitter the fittest of fit.
Me: What else you got?
Fitbit, Oh Fitbit
Fitbit (FIT) released its earnings last week and it was nothing to write home about. The company's revenue for the quarter was flat, with increased sales in Asia making up for the declining sales in the U.S. For its Q1 2019 guidance, Fitbit expects to pull in $250M - $268M, which is above what it did in Q1 2018 ($247M), but that number falls below Wall Street's expectation of $273 million for Q1.
In no way is this me throwing shade towards Fitbit, it's me throwing shade at whoever convinced Fitbit they should be a public company.
I've been an active runner for a long time, since the 90s (humble brag). But before Apple Watches, Fitbits, and other fitness trackers. What running has taught me about diet and exercise that I use in company evaluations is, if you want to be fit you'll do it, if you want to eat healthy you will do it. There is no $100, $200, or $300 piece of equipment required to get fit. If you can't get it going with a free app you're not ready to get it going. If this is the audience you covet, because you believe your product will motivate that audience to exercise, you've lost before you started.
Fitness trackers are fun to use, but the ideal that it would make working out fun is comical. For me the iPod and the iPhone made running/working out more enjoyable than a fitness tracker ever could, running/ working out to music, lots of music, was a game changer.
Don't Be Fooled by the Term "Tech"
Venture Capitalist and investors who missed out on the FAANG stocks are so desperate to find the next tech giant that they will see one where one doesn't exist.
I felt Fitbit could've been a nice little company, but someone attempted to make it into a big tech firm and it never was. Wearables, in terms of fitness trackers just isn't a big tech idea on its own. According to Fitbit, 38% of all activations in 2018 came from repeat customers; of repeat customers, 52% came from customers who were inactive during a prior period. That's not a terrible stat but it doesn't scream big tech company.
Fitbit like Spotify with streaming needs something else. The companies they are competing against are using hobby projects to win a pro race. In the case of Spotify where streaming is their main thing, music streaming to Apple, Google, and Amazon is a side hustle. Apple's Apple Watch is a pet project gone right, it's Fitbit's main thing.
Do you remember when Wall Street analysts called the Apple Watch a bust? It now has 51% of the smartwatch market according to Strategy Analytics. These were probably the same analysts who saw Fitbit as "Big Tech."
Some Financial Highlights From Fitbit
Sold 5.6 million wearable devices, up 3% year-over-year. Average selling price decreased 2% year-over-year to $100 per device, driven by adding Fitbit Charge 3TM, our most intelligent tracker, to our device mix.
International revenue was $243 million, representing 43% of total revenue.
New devices Fitbit VersaTM, Fitbit AceTM and Fitbit Charge 3 represented 79% of revenue.
(For Fiscal Year 2018) Sold 13.9 million wearable devices, down 9% year-over-year. Average selling price increased 4% year-over-year to $105 per device, driven by our device mix.
A Lot of People Talking, Very Few Doing
Getting fit is a spectator sport, lots of people talk about it, but few are actively doing it. The getting fit market is a market that you throw some money at, not everything and the kitchen sink at.
If you're having delusions of grander because Fitbit is a name that you know and it's trading below $10 a share, think again, this aint it. Fitbit is an AVOID. If you really have a desire to invest in fitness, look at Nike (NKE). There's also Apple (AAPL), why not enjoy some of the Apple Watch profits?
However, if Fitbit decided to either add something else to their product offering outside of fitness trackers or turn the company into a lean mean fitness machine, I may take another look at the stock in the future.
This is where I leave you with an AVOID on Fitbit, and a warning to be careful of Wall Street guys telling you about Big Tech.