Will Fitbit Bottom-Fishers Get Burned?

Investors have been trying to call Fitbit’s (FIT) bottom for quite some time, only to continue losing money. The stock has plunged from over $40 to under $15 in a matter of a few months, and investors who think the bottom is in couldn’t be more wrong as Fitbit could easily fall under $10 in the coming quarters.

There are several reasons why I think the stock could head to under $10, which is why I think investors should stop trying to call a bottom.

Is Wearables payment an opportunity

 Fitbit plans to include payment feature into its wearables.
As per Tractica, around $500 billion NFC based wearable payment will be done in 2020. By introducing wearable payment feature, the company will be able to compete against major technology firms which are also staking on the multi-dollar wearable payments segment.

Fitbit is strategizing to enter into this market, and the company’s wearables sales could gain a boost as soon as customers come in with a habit of making payments via wristbands and smartwatches. Apart from this, entering into this market will permit the company to grow over low-priced wearables products available in the market.

However, many Chinese manufacturers are introducing much more efficient products with a lot of features that are priced considerably below Fitbit’s products. On the other hand, including the payment feature in the company’s products will add further costs and make the device more expensive.

Problems are not over

Still there are many problems awaiting Fitbit. At present, the company’s biggest competitor is Apple (AAPL). As a matter of fact, there is a gap of just $50 between Apple’s Watch Sport and Fitbit’s Surge. However, it is highly likely that Apple will launch a product for middle-class customers as well.

Also with time, the gap of $50 will shrink further. Keeping in mind the brand value of Apple, most customers will likely shell out $50 more for its products over Fitbit’s.

At present, the company’s resources and abilities are well associated with the initial adopter period of the wearables market, but as the company will move in the direction of full-fledged smartwatch devices, it will certainly find itself lacking amid the major companies which lead due to their deep pockets and global brand value.

Conclusion

While Fitbit has a market share lead over Apple, I expect it to surrender that advantage in the near future. Growing R&D expense shows that Fitbit is struggling against the ever-growing list of competitors and will likely spend more in the future. As a result, I think investors should not try to go bottom-fishing with Fitbit.

 
Published on Jun 1, 2016
By Akshansh Gandhi

Copyrighted 2016. Content published with author's permission.

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