Will Under Armour Eat Fitbit's Lunch?FIT) is all set to report its earnings this week. With Fitbit having under-performed the last time, investors are expecting Fitbit to deliver stellar earnings. Although Fitbit can deliver good earnings, leading to a breakout, I am still bearish on the stock in the long run. Hence, I think long-term investors should still sell Fitbit irrespective of the earnings report and the reason for my stance is mentioned below.
A threat for Fitbit
As per Under Armour’s (UA) recent conference call, the company’s Curry 2 basketball shoes were its best-selling product in e-commerce followed by HealthBox, a new health tracking platform.
When Under Armour revealed HealthBox, Fitbit stock plunged on concerns about rising competition. Throughout the past few years, Under Armour has been investing aggressively in manufacturing fitness products and applications. The company also acquired some popular applications like Endomondo, MyFitnessPal, and MapMyFitness, and then introduced its self-created app titled as UA Record.
On the other hand, Under Armour also introduced Speedform Gemini 2 Record Equipped-connected sneakers, and the connected device like Armour 39, for dedicated athletes. Apart from this, the company’s digital network now comprise of more than 160 million registered users, with more than 100,000 new users logging on each day and registering.
Under Armour’s registered user count is more than five times the 29 million registered user count of Fitbit, but Under Armour’s entire count comprises of all the users from its acquired apps. However, the launch of HealthBox and its committed applications demonstrates that the company is serious about constructing an incorporated digital health ecosystem to stand against Fitbit.
However, Fitbit still defeats Under Armour in terms of product sales. According to the Fitbit’s most recent quarterly results, its revenue rose 92 percent to $712 million on a yearly basis, whereas Under Armour’s Connected Fitness revenue surged 119 percent to $19 million in last quarter, less than 2 percent of its overall revenue. Some analyst believes that this number could reach $200 million in the coming two years. Fitbit is still a much superior competitor in wearables technology segment, but it needs to look out for Under Armour’s marketing power.
Under Armour is not Fitbit’s only competition. The company competes against many other giants like Apple and Garmin. However, given Under Armour’s history of strong execution, I think it can grow rapidly and snatch Fitbit’s market share in the future. Given the strong competition, I am bearish on Fitbit’s long-term future.
Published on May 3, 2016By Akshansh Gandhi