Fitbit Is Now Fit Enough for Your Portfolio

Fitbit’s (FIT) stock has taken a beating this year due to the company’s weak guidance and the overall market sentiment regarding growth stocks. Although I do think Fitbit was overvalued and deserved to be a lot cheaper, however I think the sell off is overdone and the stock may have bottomed. With market stabilizing, I think investors should consider buying Fitbit on the pullback.

Fitbit’s Alta is better than Blaze

Much of Fitbit’s recent downfall can be attributed to the company’s Q4 earnings.
The undesirable reaction of investors despite the expanded gross margin and nearly doubled revenue was not regarding the fourth-quarter results, but due to Fitbit’s guidance. First quarter revenue is projected to be in the range of $420 million-$440 million.

Furthermore, Fitbit is planning on considerably higher sales and marketing expenses associated to the Blaze and Alta. The company will also incur additional manufacturing costs to meet the need of expected demand. It is the first time that the company has done a coordinated worldwide product launch, which will also add to the costs.

According to Fitbit, its market scheme is a core asset and competitive differentiator, and it appears in the income statement. Sales and marketing expenses are Fitbit’s largest operating expense.

As a matter of fact, the company spent almost three times as much on sales and marketing previous quarter compared to the research and development. And that’s after research and development costs rose as the Alta and Blaze announcements were looming. At the end of 2015, sales and marketing expense accounted for 60 percent of operating expense.

From the two new products, Alta looks quite promising, as the Blaze has not gathered optimistic reviews. According to a report from Wall Street Journal, Fitbit’s Blaze design is unpleasant and its smart features are disappointing. Fitbit’s Alta comprise of a new feature called stand up every hour, as sitting for long period cause many diseases. Like Flex, Alta’s look is customizable, and has next generation Fitbit features such as automatic exercise recognition as well as on-screen text, call, and calendar alerts. The only downside of Alta is the absence of heart tracker.

All in all, Fitbit’s new product looks promising and given the recent downfall in the stock, I think investors can consider buying it on the pullback. The recent selloff is overdone and l strongly believe shares of Fitbit have bottomed.
Published on Mar 8, 2016
By Akshansh Gandhi

Copyrighted 2020. Content published with author's permission.

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