Fitbit shares tanked on Thursday following a downgrade from analysts at Pacific Crest. Their checks suggest that the new Charge 2 fitness wearable is off to a slow start, and they still believe that many people who have purchased a Fitbit stop using it within months of buying it. Needless to say, this presents a long-term problem for the fitness maker, although for now, Raymond James analysts said on Wednesday that the company still owns the segment despite big gains by the Apple Watch.
Fitbit stock heading to $11?
In a report dated September 28, Pacific Crest analyst Brad Erickson said he has downgraded Fitbit to Underweight and sees downside to $11 per share. The company recently launched its new Charge 2 wearable, but Erickson’s checks with 15 big box retailers in the U.S. suggest that it isn’t going so well. The retailers his team spoke with said the Charge 2 is now in full distribution, but they have found “meaningful” accumulation of inventory in the channels. In fact, the analyst said they’re finding more than two weeks’ worth of inventory on hand.
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It’s unclear if Best Buy was one of the retailers Erickson spoke with, but you may recall that only a little over a month ago, the big box electronics chain was talking up demand for wearables.
He does expect sell-through to ramp as the holiday shopping season approaches, but run rates for the Charge 2 are lower than where the Blaze and Alta started out earlier this year. He views this as a disappointing start. After analyzing run rates and current inventory levels, he estimates that Fitbit shipped between 600,000 and 800,000 Charge 2 wearables during the third quarter.
The analyst believes Fitbit could find growth to be difficult because of its core utility issue. He still believes “a large portion” of those who own one of the company’s devices stop using it within months of receiving it. Of course this is a very basic problem that results in a high churn rate, making it difficult for the company to find growth.
Apple threatens Fitbit
Apple and Aetna announced this week that they have struck a deal for the insurer to subsidize or purchase some Apple Watches for customers and employees. Of course this is a huge blow to Fitbit, which has been making headway through corporate partnerships.
“That Apple can ink an exclusive deal without a truly mass market device is scary,” Erickson wrote in his report. “Imagine what Apple could do when (not if) it comes out with a $150-$200 fitness tracker, which we expect within the next year or two.”
Fitbit still leading in a survey
On Wednesday, Raymond James analyst Tavis McCourt had some positive news for Fitbit in the form of his firm’s recent survey about fitness wearables. He said the company still has a stranglehold on the wearable market in terms of purchasing intent, with 16% of respondents saying they intended to buy one, which is a new record. Also 14% of respondents already have one, which is also the highest reading ever. Last year those figures were 14% and 12%, respectively.
However, McCourt also had some troubling findings regarding Apple, which is closing the gap with Fitbit. Just 2% of his survey’s respondents own an Apple Watch, and 9% plan to buy one. The concern here is that he has found a steady increase in purchase intent for the device, although thus far, that intent has not translated into purchases. The analyst expects a “meaningful uptick” in demand for the Apple Watch the year the company gets the wearable “right,” although it would seem that it hasn’t arrived yet.
Apple did unveil the Series 2 models along with the iPhone 7 lineup, but so far the new iPhone has gotten all the attention (good and bad).
Fitbit shares plunged by about 10% to as low as $14.97 during regular trading hours today, while Apple stock slipped by as much as 1.54% to $112.20 on a bearish report from Barclays.