Fitbit stock was a favorite short position as recently as late last year, and the shorts continue to cheer as shares fall lower and lower. Analysts aren’t expecting much out of the company’s fourth quarter earnings report and are saying so in their research notes.
Longbow cuts forecast for Fitbit
In a research note dated Jan. 18, Longbow Research analyst Joe Wittine warned that this year will probably be a “challenging” one for Fitbit. Due signs of weak sell-through for dedicated fitness trackers during the holiday shopping quarter, he cut his sales estimate to the low end of the company’s guidance, which was set at $725 to $750 million.
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However, he maintained his Neutral rating on Fitbit stock because he said it is “quite inexpensive” at less than 0.5 times sales and 12 times earnings. He needs to see a positive catalyst such as a compelling new product, which he sees as probable at some point, although questionable for the first half of the year. Other possible positive catalysts include corporate wellness growth like the UnitedHealth partnership, growth in China, which he says is looking less and less likely, and “material” reductions in costs, which he describes as “unlikely” in the near term.
Based on all these factors, he expects this year to be “flattish.”
Signs of weakness in the fitness tracker category
According to Wittine, growth in the global fitness tracker market appears to have stalled with flat sales in December and January expected to bring Fitbit’s first year over year decline since it scaled. He said these signs point to the maturation of the fitness tracker category in the U.S.
He also noted that the company cut prices for the Charge 2 and Flex 2 by $20 in January, suggesting that sell-through was soft during the holiday shopping season. Further, there’s no visibility into upcoming products, and it looks like Fitbit will have to pivot into smartwatches with more features, which he believes it can do with the Surge 2. However, he feels a broader set of products using the Pebble and Vector acquisitions will take some time. Also there is a lack of scale in the brand in China.
Wedbush cuts price target for Fitbit stock
Wedbush analyst Nick McKay and team also have a Neutral rating on Fitbit stock but slashed their price target from $10 to $8.50 per share in a research note dated Jan. 13. They also picked up signs of weakness during the holiday shopping season and are now taking a “wait-and-see approach” to the company’s fourth quarter earnings results.
McKay reported that their Black Friday and Christmas store checks pointed to “supply outpacing demand by a wide margin.” The Wedbush team felt that the displays appeared to be well-stocked before both days, but they didn’t see much foot traffic and didn’t see “significantly reduced” inventories after each. Further, the Flex 2 supply looked limited compared to that of other devices, which they believe suggests that the company was encountering production challenges.
Their online checks were more positive, however, with the Charge 2 holding at the top of Amazon’s and Best Buy’s bestseller lists, although the Flex 2 still lagged. Download data from AppAnnie remained consistent at the end of the year. The Wedbush team feels that most of the demand concerns are already priced into Fitbit stock, as we’ve been seeing signs that the fitness wearable market is stalling for months.
Shares of Fitbit stock plunged by about 2% during regular trading hours on Wednesday, setting a new record low of $7.12 before bouncing.