Stay Away From Moat-Less Fitbit

2015 was an awful year for Fitbit (FIT) and 2016 has been no different. The company generates its revenue from a single type of product aiming the market for casual health and fitness. Awkwardly, such a story line comprises fundamentals of high ambiguity and risk.

According to the Wall Street outlook, it is significant to apprehend that future cash flows from hardware are rigid to model as they are very capricious. Technology advances with the time and earlier titans like BlackBerry and Nokia remind fund managers of the delicate position of prevailing technology front-runners.

Fitbit’s situation will get even worse mainly due to dependency on a solo product type and grinding down glitches found in the health and fitness sector.
However, the company is still at its early age and comparatively inexperienced business. The company still has a lot to prove that it has potential to withstand challenging circumstances regarding viable pressure, varying market conditions, and fluctuating technology and economy cycles.

On the other hand, the company gained lot of advantages like fitness platform with social features, commercial wellness programs, and an extensive marketing presence, as it sold record-breaking 21 million units in 2015. However, the problem is that none of those advantages are endurable.

Unlike Android and iOS platform, Fitbit users are hastily leaving the platform mainly due to the distinctive nature of fitness. The company’s registered users list reached 16.9 million, down 11.9 million users from 2.8 million users. This clearly shows that 41 percent of the company’s consumers have clogged using their products.

Two months earlier, when the company launched its latest product named Blaze, the stock price moved downward, as stockholders saw no technology advancement in the Blaze fitness watch and nothing to build a viable competitive lead.

Conclusion

Fitbit currently has no moat and although the stock has been beaten down to a cheap level, it is a risky bet. I say this because GoPro witnessed a similar drop and kept on going lower despite its seemingly cheap valuation. Like Fitbit, GoPro had no moat and its business was not built for the long-term. Betting on company that relies on a single type of product that targets a niche market is never a good idea and Fitbit falls into that category perfectly.
Published on Apr 1, 2016
By Akshansh Gandhi

Copyrighted 2016. Content published with author's permission.

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