Fitbit (FIT, Financial) has lost more than 75% of its overall value since its IPO in 2015.
The stock is down approximately 74% year to date, and it looks like the company still has more downside to offer.
Recently, the company shared poor third-quarter results as its revenue came in at $503.8 million, missing estimates by $3.1 million and representing a growth of just 23% year over year. Most significantly, that figure also represents the company’s slowest growth since its IPO. On the other hand, the company detailed earnings per share of 19 cents, in line with the consensus estimates.
Following the report, the company’s shares dropped 30%. On top of a disappointing quarter, the company also downgraded its outlook for the holiday quarter which severely impacted its full-year outlook for sales.
In point of fact, this particular industry is getting crowded as several companies are entering in this segment with different offerings. Therefore, Fitbit aggressively surged its spending this year so as to gain a lead over its competitors. Throughout the first nine months, operating expenses and R&D expenses surged by 100% and 145%. Despite all these, the company’s revenue escalated by just 39%.
The massive spending resulted in a variety of new products that launched in 2016 like the Alta, the Blaze, the Charge 2 and the Flex 2. Throughout the prior quarter, all of these products combined accounted for 79% of the company’s overall revenue. However, all that cash used in product development and marketing has failed to achieve its purpose.
The company now anticipates sales in the upcoming quarter escalating in the range of 2% to 5% from last year. As a result, that pulls down the projection for full-year growth to almost 25% which signifies a drop of 14% compared to 39% delivered so far this year.
As a matter of fact, Fitbit is still profitable, generating less than $100 million of net income on $1.6 billion of sales throughout the starting nine months of 2016. But, most important thing to keep in mind is that profitably selling gadgets is a tough task. The company still holds a leading position, but it is just not generating the kind of growth it requires to validate its massive spending.
Summing up
Fitbit is down 84% from its all-time high, and it looks like the problems are still not over for the company. Moreover, escalating competition has certainly taken a toll on the company and this trend should amplify in the imminent years.
Fitbit has a lot to prove next year when it introduces several new products. As a result, stockholders wanting to profit from the wearables industry should consider other options such as Under Armour (UA, Financial) and stay away from Fitbit.
Disclosure: I do not hold positions in the stocks mentioned in the article.
Start a free seven-day trial of Premium Membership to GuruFocus.
