Will Fitbit Survive the Crash?

Fitbit (FIT) announced first quarter ended April 2, 2016 total revenue of $505.4 million, up 50 percent year over-year from $336.8 million during the same period last year. Going forward, the company estimates second quarter of 2016 revenue to be in the $565 million to $585 million range.

Weakness in the cards

Fitbit declared first quarter of 2016 non-GAAP net income of $24.5 million or $0.10 per diluted share, down 56 percent year-over-year from $56.2 million or $0.27 per diluted share in first quarter of 2015.
Moving ahead, the company estimates second quarter of 2016 non-GAAP diluted net income per share to be in the range of $0.08 to $0.11.

The global wearable health technology major reported continued year-over-year top line growth primarily driven by significant product sales for the quarter. However, enhanced expenditures during the period related to growth in R&D headcount has resulted in bottom line contraction for the quarter.

Fitbit recently introduced the useful Sleep Schedule mechanism that enables the user to achieve a highly consistent sleep pattern by providing help to set personalized sleep objectives depending on the user’s sleep data to get enough sleep every night, offering wakeup goals and customized bedtime to develop sleep consistency and finally, providing a sleep plan history and reminders about staying on schedule to monitor user’s progress.

Positive moves

Fitbit lately declared the introduction of Fitbit Group Health, which is a program targeted on achieving the health goals made for clinical researchers, insurers, weight management majors and some key corporate wellness companies. In addition, the employees at Target Corporation have greatly benefited from the wellness devices being offered by Fitbit to enhance their activity potentials.

The healthcare tracking devices manufacturing company is focused on launching new health tracking features for its hand-worn devices in order to increasingly attract new customers and expand its market share. Further, the strategic partnerships with key corporations to enhance its market presence is believed to increasingly make health tracking devices popular among the general population and thus, expanding the company’s market share.

Going forward, Fitbit seems keen on expanding its market presence and taking the full-advantage of being the first-mover in this category by uniquely partnering with a well-known design house named TEN PIECES at the Mercedes Benz Fashion Week in Australia to display fresh collections of fashion labels and showcase in a fashion film referred as “10,000 Steps X TEN PIECES” and presenting the recently introduced Fitbit Blaze and Fitbit Alta.

Tmall.com of Alibaba Group which is a China’s biggest third-party platform primarily for retailers and brands recently declared to have entered into a MoU to notably enhance the reach of Fitbit in China. With Fitbit’s key platform comprising of personalized coaching, advice, motivational and social features, apps and devices people can easily adapt to a healthy lifestyle, going forward.

The strategic partnerships with other key global OEMs is believed to significantly expand the company’s market reach while strengthening its position among other key competitors such as Apple, Inc. and Under Armour, Inc.

The health apparel manufacturing company recently declared to have acquired Coin’s wearable payment assets which includes major intellectual property and related to the company’s wearables payment platform. This key acquisition highlights Fitbit’s continued commitment towards delivering innovation in the field of fitness devices and connected healthcare.

Despite Fitbit having the first-mover advantage in the global wearables market, Apple, Inc. is believed to be a key competitor in this space with notable accessible free cash that can be employed in research and development activities to develop new wearable devices, giving tough competition to Fitbit while stealing its market share.

Fitbit is expected to be facing tough competition from other global fitness tracking devices and application manufacturers including Apple, Inc. and Under Armour, Inc. which is bound to quickly capture Fitbit’s steadily expanding market share. Therefore, Fitbit needs to invest heavily in delivering innovation across its advanced products and prevent the loss of its market share to other key technology behemoths.

Conclusion

Overall, the investors are advised to “Hold” their position in Fitbit Inc. considering the company’s significant long-term growth prospects being supported by its notable growth efforts and healthy cash position with total cash of $791.71 million and no debt as of now, encouraging the company to make future growth investments. The profit margin of 6.85% seems satisfactory. The PEG ratio of 0.57 indicates reasonable company growth and is comparable to the industry’s growth average of 1.11.
Published on Jun 23, 2016
By Subhen Mittra

Copyrighted 2016. Content published with author's permission.

Posted in ...