GoPro’s (GPRO, Financial) stock has taken a beating over the last few months and is down substantially from its all-time highs. Investors on the short-side of GoPro’s trade have benefited greatly. While GoPro may be nearing a bottom, I think Fitbit (FIT, Financial) is the next GoPro and may soon witness a similar decline.Â
Where did it go wrong?
In 2012, contract manufacturing giant Foxconn bought an 8.88% stake in GoPro at around $17.08 per share, which brought the start-up's value to $2.25 billion. Before the initial public offering, analysts wondered whether GoPro and Foxconn would together display a tactical manufacturing partnership. That deal never emerged, however, apparently due to differences in opinion between Foxconn CEO Terry Gou and GoPro CEO Nick Woodman.
Gou never took a side of GoPro, and GoPro finally ended up moving toward smaller companies. The company signed manufacturing deals with minor companies like Taiwan's Chicony Electronics. In November 2015, Foxconn publicized that it had sold 30% of its stake in GoPro over the prior year.
GoPro missed a great opportunity. If the company had worked more diligently with Foxconn, it probably could have a safe manufacturing deal that would have increased its margins and production capacity.
Is Fitbit the next GoPro?
In 2015, GoPro launched three new devices – the Hero 4, initially launched at $400, but now available at $200, the Hero+ LCD, available at $300, and the Hero+, available at $200. The devices in company’s product list are priced in the range of $150 to $500. But after observing GoPro’s prior year sales, the tactic did not improve sales to satisfactory levels.
On the other hand, Fitbit has been doing something very similar. In early 2015, the company introduced three products – the Surge, Charge, and Charge HR. These products offered additional features than its basic model Flex, One, and Zip activity trackers. The higher-end devices performed very well in the market, since approximately 80% of Fitbit's sales came from these devices last quarter.
Earlier this month, Fitbit introduced the Blaze, which is priced at about $200. The Blaze lacked a developed application system and was not competitively priced compared to its similar products. After reviewing the weakness, analysts predicted that the Blaze will be a flop model. After the launch, Fitbit's stock price declined and also indicates that Fitbit does not have enough confidence that the Surge, Charge, and Charge HR can continue to compete against smartwatches. As a result, Fitbit is going through the same situation that GoPro did the previous year.
A high amount of insider selling, along with a hyped up business model, are two more similarities that GoPro and Fitbit share.
Conclusion
Given the similarities, I expect Fitbit to continue moving lower. While GoPro’s stock may be nearing a bottom, I think Fitbit’s valuation is still high and has more downside to offer.
