{"id":87166,"date":"2016-03-25T07:17:14","date_gmt":"2016-03-25T11:17:14","guid":{"rendered":"http:\/\/countingpips.com\/?p=87166"},"modified":"2016-03-25T07:17:14","modified_gmt":"2016-03-25T11:17:14","slug":"fitbit-why-the-collapse-is-set-to-continue","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/forex\/2016\/03\/fitbit-why-the-collapse-is-set-to-continue\/","title":{"rendered":"Fitbit: Why the Collapse is Set to Continue"},"content":{"rendered":"<div id=\"inves-1802325849\" class=\"inves-below-title-posts inves-entity-placement\"><div id =\"posts_date_custom\"><div align=\"left\">March 25, 2016<\/div><hr style=\"border: none; border-bottom: 3px solid black;\">\r\n<\/div><\/div><p>By <a href=\"http:\/\/WallStreetDaily.com\/\"><u>WallStreetDaily.com<\/u><\/a> <img loading=\"lazy\" decoding=\"async\" class=\"attachment-home-th wp-post-image\" style=\"display: block; margin-bottom: 5px; clear: both;\" src=\"http:\/\/www.wallstreetdaily.com\/wp-content\/uploads\/2016\/03\/03-25-fitbit-wearable-tech.jpg\" alt=\"It\u2019s Official: Fitbit Joins the \u201cBusted IPO\u201d Club\" width=\"510\" height=\"300\" \/><\/p>\n<p>Last October, I wrote a <em>Wall Street Daily<\/em> article where I pegged <strong>Fitbit<\/strong> (<a href=\"http:\/\/finance.yahoo.com\/q?s=fit&amp;ql=1\" target=\"_blank\">FIT<\/a>) as \u201c<a href=\"http:\/\/www.wallstreetdaily.com\/2015\/10\/06\/fitbit-tech-stock\/\">The World\u2019s Most Dangerous Tech Stock<\/a>.\u201d<\/p>\n<p>Cue howls of derision from the masses!<\/p>\n<p>I was universally panned for speaking negatively about Wall Street\u2019s favorite wearable tech stock.<\/p>\n<p>\u201cLouis Basenese is clueless about Fitbit,\u201d chimed one reader.<\/p>\n<p>So be it. Because being clueless has never felt so good!<\/p><div id=\"inves-3766726666\" class=\"inves-in-content inves-entity-placement\"><hr style=\"border: 1px solid #ddd;\">\r\n<div id=\"inpost_ads_header\">\r\n<p style=\"font-size:10px; float:left; color:#666;\">Free Reports:<\/p><\/div>\r\n<div id=\"inpost_ads\"> \r\n<p style=\"font-size:15px; float:left;\"><a href=\"https:\/\/goo.gl\/1ApBOV\"><img loading=\"lazy\" decoding=\"async\" src=\"https:\/\/investmacro.com\/wp-content\/uploads\/2018\/06\/graph_techs_PD.png\" align=\"left\" width=\"80\"  height=\"55\"\/><\/a>\r\n\t     <a href=\"https:\/\/goo.gl\/1ApBOV\"><b><u>Get Our Free Metatrader 4 Indicators<\/u><\/b><\/a> - Put Our Free MetaTrader 4 Custom Indicators on your charts when you join our Weekly Newsletter<\/p><br><br>\r\n<br>\r\n<br>\r\n<p style=\"font-size:15px; float:left;\"><a href=\"https:\/\/goo.gl\/f3RrHX\"><img loading=\"lazy\" decoding=\"async\" src=\"https:\/\/investmacro.com\/wp-content\/uploads\/2019\/01\/cot_pie_80.png\" align=\"left\" width=\"80\"  height=\"55\"\/><\/a>\r\n\t    <a href=\"https:\/\/goo.gl\/f3RrHX\"><b><u>Get our Weekly Commitment of Traders Reports<\/u><\/b><\/a> - See where the biggest traders (Hedge Funds and Commercial Hedgers) are positioned in the futures markets on a weekly basis.<\/p><br><br>\r\n<\/div>\r\n<hr style=\"border: 1px solid #ddd;\">\r\n<br><\/div>\n<p>Fitbit\u2019s stock is down a staggering 60% since that time.<\/p>\n<p>From its post-IPO highs, the wealth destruction is even more appalling. Shares have plunged by 72%.<\/p>\n<p>Amazingly, one sell-side analyst \u2013 SunTrust Robinson Humphrey\u2019s Bob Peck \u2013 insists the \u201cdip\u201d represents a compelling buying opportunity.<\/p>\n<p>As I\u2019ll show you in a moment, he\u2019s lost his mind and all credibility. And I\u2019m afraid that if you follow his lead, you\u2019ll lose even more \u2013 your hard-earned money.<\/p>\n<h2>From First to Worst<\/h2>\n<p>There\u2019s no doubt that Fitbit remains the dominant player in the wearable tech industry.<\/p>\n<p>The company sold 21.4 million devices in 2015, nearly double the amount in 2014.<\/p>\n<p>Remember, though, Fitbit timed its stock market debut perfectly \u2013 when its headline financials were off-the-charts impressive.<\/p>\n<p>For instance, year-over-year sales <em>tripled <\/em>in the quarter before its June 2015 IPO.<\/p>\n<p>But to maintain its ballooning share price and valuation, the company needed to keep putting up similar numbers.<\/p>\n<p>It\u2019s simply not possible.<\/p>\n<p>As I warned, Fitbit was destined to suffer from slowing growth, shrinking margins, and increased competition, which would ultimately lead to its obsolescence.<\/p>\n<p>And it\u2019s all coming to pass. Consider:<\/p>\n<ul>\n<li><strong>Slowing Growth:<\/strong> Fitbit now expects sales to rise between 29% and 34% in 2016. That\u2019s down from 149% in 2015 and 175% in 2014.<\/li>\n<\/ul>\n<ul>\n<li><strong>Shrinking Margins: <\/strong>On Fitbit\u2019s last earnings conference call, the company revealed that its EPS forecast for the first quarter would be $0.00 to $0.02. Yet analysts were expecting EPS of $0.23 per share. Why such a massive disconnect? It\u2019s down to expensive media promotions to attract new buyers, as well as higher manufacturing costs.<\/li>\n<\/ul>\n<ul>\n<li><strong>Increased Competition: <\/strong>While Fitbit\u2019s chart-topping market share is impressive, it\u2019s shrinking \u2013 and rapidly. This is due to the impressive growth of newcomers in the field like <strong>Apple<\/strong> (<a href=\"http:\/\/finance.yahoo.com\/q?s=AAPL&amp;ql=0\" target=\"_blank\">AAPL<\/a>) and Xiaomi. There\u2019s no way that Fitbit can reverse the trend, either. Not with Apple\u2019s premium appeal and functionality. And not with Xiaomi offering a device that tracks sleep, steps, <em>and <\/em>heart rate for under $25. Fitbit\u2019s comparable offering \u2013 the Charge HR \u2013 retails for $149.95.<\/li>\n<\/ul>\n<p><img loading=\"lazy\" decoding=\"async\" class=\"aligncenter\" src=\"http:\/\/media.wallstreetdaily.com\/charts\/0316-DD.png\" alt=\"Dominance Dwindling: Top Five Wearable Companies by Market Share\" width=\"500\" height=\"442\" \/><\/p>\n<h2>From \u201cBuy, Buy, Buy\u201d to Bye, Bye, Bye<\/h2>\n<p>Despite these gale force headwinds, though, SunTrust\u2019s Peck wrote this on January 6 (while reiterating his \u201cBuy\u201d rating, too):<\/p>\n<p><em>\u201cWhile we acknowledge that the competition announcements and lockup expiration add risk value, we think the almost additional $1 billion of value destruction on top of this worst-case scenario was overdone.\u201d<\/em><\/p>\n<p>Nope. On the contrary, in fact.<\/p>\n<p>Since that note, Fitbit\u2019s shares have declined another 36%, destroying another $1.1 billion in value.<\/p>\n<p>Undeterred, however, Peck is still pounding the table on the stock.<\/p>\n<p>On February 23, he wrote:<\/p>\n<p><em>\u201cWhile investments may be lumpy as FIT focuses on growth of the nascent market globally, we continue to believe there is a significant long-term opportunity for the company to deliver health\/fitness solutions to consumers as well as enterprises and health insurers.\u201d<\/em><\/p>\n<p>Mr. Peck can believe in the \u201clong-term opportunity\u201d for Fitbit all he wants. But it doesn\u2019t exist. And at this point, nor does his credibility.<\/p>\n<h2>Time for Some Truth Serum<\/h2>\n<p>The truth reveals the fatal flaw in Fitbit\u2019s business model: It has no recurring revenue.<\/p>\n<p>Instead, the model relies on convincing existing users to keep upgrading, while attracting more and more \u201cmainstream\u201d customers to purchase devices.<\/p>\n<p>But there\u2019s a real problem here: The data reveals that approximately 50% of Fitbit buyers abandon their devices within the first year.<\/p>\n<p>And I know why from personal experience.<\/p>\n<p>I bought three Fitbit devices for Christmas gifts, including one for myself. But less than three months in, I barely use it. Nor do the other two recipients. Why? Let me count the reasons\u2026<\/p>\n<ul>\n<li>The novelty wears off.<\/li>\n<\/ul>\n<ul>\n<li>The battery life isn\u2019t as robust as advertised.<\/li>\n<\/ul>\n<ul>\n<li>Sleep monitoring is entirely unreliable. Manually \u201ccorrecting\u201d the data to indicate that I wasn\u2019t actually sleeping, but in fact in the midst of my morning devotional time or watching a movie with my wife, is annoying.<\/li>\n<\/ul>\n<ul>\n<li>The heart rate monitoring capabilities are equally suspect, based on my comparison after borrowing a friend\u2019s Garmin device with heart rate monitoring. I\u2019m not alone here, either, as there\u2019s a class-action lawsuit against Fitbit for failing to accurately measure heart rates. (I\u2019m not part of it, as I\u2019m not the litigious type).<\/li>\n<\/ul>\n<ul>\n<li>The device isn\u2019t waterproof. Every shower and hand-washing requires removing the band just to be safe.<\/li>\n<\/ul>\n<p>I could go on. But we\u2019re not here for a product review.<\/p>\n<p>Getting back to the investment angle and perma-bull analyst, Peck\u2026<\/p>\n<h2>Fitbit Following Groupon and Zynga in a Race to the Bottom<\/h2>\n<p>Since Fitbit went public in June 2015, he\u2019s maintained a \u201cBuy\u201d rating on the stock the <em>entire time.<\/em><\/p>\n<p>And while his early price targets of $50 (July 2015) and $52 (August 2015) appeared prescient, he\u2019s been forced to repeatedly lower his targets since then, lest he look completely foolish as he continues to tell investors to buy on the dips.<\/p>\n<p><img loading=\"lazy\" decoding=\"async\" class=\"aligncenter\" src=\"http:\/\/media.wallstreetdaily.com\/charts\/0316-Race.png\" alt=\"Race to the Bottom! Is This An Analyst Worth Following? Fitbit Stock Price vs. Analyst Rating and Price Target (PT)\" width=\"500\" height=\"402\" \/><\/p>\n<p>Thankfully, though, not every analyst is being hoodwinked.<\/p>\n<p>In addition to me, Trip Chowdhry of Global Equities Research believes there\u2019s 50% more downside to Fitbit\u2019s stock. That would suggest a share price of about $7.<\/p>\n<p>\u201cGradually the market for single-purpose devices (fitness trackers) is heading toward zero and there is nothing FIT can do to reverse the trend,\u201d said Chowdhry.<\/p>\n<p>Amen!<\/p>\n<p>I recommend you continue to avoid the stock. And if you own it already, get out while you can.<\/p>\n<p>As I wrote before: \u201cThe Fitbit IPO is eerily similar to the climate that preceded the IPOs for <strong>Groupon <\/strong>(<a href=\"http:\/\/finance.yahoo.com\/q?s=grpn&amp;ql=1\" target=\"_blank\">GRPN<\/a>) and <strong>Zynga <\/strong>(<a href=\"http:\/\/finance.yahoo.com\/q?s=ZNGA&amp;ql=0\" target=\"_blank\">ZNGA<\/a>). Each went public at the pinnacle of their respective industries. And while early investors and owners made a fortune, both stocks proved to be disastrous investments for everyday investors.\u201d<\/p>\n<p><img loading=\"lazy\" decoding=\"async\" class=\"aligncenter\" src=\"http:\/\/media.wallstreetdaily.com\/charts\/0316-Busted.png\" alt=\"The &quot;Busted IPO&quot; Club: Percentage Change From IPO Price\" width=\"500\" height=\"416\" \/><\/p>\n<p>Almost 300 days after the company\u2019s IPO, there\u2019s no denying Fitbit is on exactly the same path.<\/p>\n<p>Ahead of the tape,<\/p>\n<p>Louis Basenese<\/p>\n<p>The post <a href=\"http:\/\/www.wallstreetdaily.com\/2016\/03\/25\/fitbit-wearable-tech\/\" rel=\"nofollow\">Fitbit: Why the Collapse is Set to Continue<\/a> appeared first on <a href=\"http:\/\/www.wallstreetdaily.com\" rel=\"nofollow\">Wall Street Daily<\/a>.<\/p>\n<p>&nbsp;<\/p>\n<p>&nbsp;<\/p>\n","protected":false},"excerpt":{"rendered":"<p>By WallStreetDaily.com Last October, I wrote a Wall Street Daily article where I pegged Fitbit (FIT) as \u201cThe World\u2019s Most Dangerous Tech Stock.\u201d Cue howls of derision from the masses! I was universally panned for speaking negatively about Wall Street\u2019s favorite wearable tech stock. \u201cLouis Basenese is clueless about Fitbit,\u201d chimed one reader. So be [&hellip;]<\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[],"tags":[],"class_list":["post-87166","post","type-post","status-publish","format-standard","hentry","no-post-thumbnail"],"_links":{"self":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/87166","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/comments?post=87166"}],"version-history":[{"count":3,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/87166\/revisions"}],"predecessor-version":[{"id":87179,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/87166\/revisions\/87179"}],"wp:attachment":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/media?parent=87166"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/categories?post=87166"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/tags?post=87166"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}