Fitbit Inc. (FIT, Financial) disappointed shareholders in 2017 as the stock was down almost 22%. The company's downturn started after it reached its all-time high soon after its initial public offering (IPO) in June 2015. Since then, the stock has lost nearly 90% of its overall value.
Further, the stock is off to an awful start heading into 2018.
Shares of Fitbit plunged more than 12% on Feb. 27 – the day after the wearable device maker reported weak fourth-quarter results. For the quarter, the company posted a net loss of 2 cents, missing the consensus estimate.
Revenue came in at $570.8 million, again missing the consensus by $18 million. That figure represents a decline of 0.5% from the year-ago quarter. The company’s revenue in the U.S. declined 13% year over year to $330 million. Fitbit sold a total of 15.3 million devices last year, down considerably from 22.3 million in 2016.
Despite the launch of its first full-featured smartwatch, Ionic, Fitbit’s revenue declined in the prior quarter. In addition, the company said it expects its revenue to fall between 15% and 20% in the first quarter.
Moving on to the balance sheet, the company currently has approximately $750 million in working capital with no debt. However, with deteriorating margins and zero cash flow, shareholders should not expect any upside from Fitbit’s stock.
The company recently announced it is planning to acquire Twine Health, a HIPPA-compliant, cloud-based health management platform. While the company has not disclosed any details regarding the acquisition, it plans to close the deal by the end of the first quarter.
With this acquisition, Fitbit is planning to turn things around, which may be quite difficult at this point. The company believes its devices will become more crucial for consumers with chronic health conditions that require daily tracking.
Fitbit currently faces fierce competition from Apple (AAPL, Financial), which recently incorporated advanced heart-rate sensing features into its Apple Watch. The tech giant is aggressively trying to expand its reach further in the wearables industry as it is currently working on several health-related features such as a needle-free blood sugar monitor.
As a matter of fact, Apple has an enormous amount of free cash flow, which would allow it to spend lavishly on research and development (R&D) in the upcoming years. The same cannot be said for Fitbit.
Summing up
Fitbit has lost most of its value over the past two years and will likely continue moving downward in the coming quarters as well. While the company said it predicts increased smartwatch sales this year, it will not be enough to counter the declining revenue from other products.
The wearables industry is also getting crowded with comparatively cheaper devices from Xiaomi, Garmin (GRMN, Financial) and Huawei, which could create additional problems for Fitbit going forward. Although Fitbit has taken a step in the right direction by acquiring Twine Health, it is still not clear whether this acquisition will be advantageous.
Considering the existing environment and Fitbit’s guidance for the year, it is not likely the company will be able to find its way back to growth anytime soon. As a result, I would recommend investors stay far away from the stock as its future looks bleak.
Disclosure: No positions in the stocks mentioned in this article.
