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Fitbit (FIT) Expands in Ireland Despite Apple Tax Fiasco

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Shares of Fitbit Inc. FIT have been witnessing a downside over the past 12 months. The company’s stock generated a negative return of 53.1% as against the S&P 500’s positive return of 13.5% over the same period.

Increasing popularity of smartwatches along with fierce competition could be primarily responsible for the stock’s downward trend. However, the company remains focused on driving growth and is expanding in Europe amid an unfavorable tax environment.

The recent fiasco involving Apple Inc. (AAPL - Free Report) and the EU over tax issues has had no impact on Fitbit, a fitness wearables maker. The company remains firm on its expansion plans in Europe and has set up its regional headquarters in Dublin, Ireland.

The Apple Tax Fiasco

Apple’s European headquarters is situated in Cork, Ireland. Earlier last week, the European Commission, which is the EU’s executive arm, ruled that Ireland should charge 13 billion euros as taxes from the tech giant. Commenting on the ruling, Tim Cook, Apple’s CEO said that the demand by the EU was totally unfair and was politically driven.

However, we note that the Apple fiasco has not deterred Fitbit from expanding its presence in Europe, the Middle East and Africa (EMEA) by making Ireland its regional base for business. According to James Park, Fitbit’s CEO, Ireland’s huge talent pool coupled with other aspects offer a conducive business environment for the company.

Fitbit has doubled its staff count in Ireland over the past year and is likely to add more in the coming years. During the past quarter, the company registered a whopping 150% growth in revenues on a year-over-year basis in Europe.

Intensifying Competition

Fitbit recently introduced upgrades for two of its fitness wearable products, the Charge 2 and Flex 2. However, with the presence of major players in the segment such as Apple and Xiaomi, the company’s market share has been under constant pressure. According to a research report published by IDC in May 2016, the company’s market share shrank to 24.5% in the first quarter of 2016 from 32.6% in the year-ago quarter.

However, we note that the company has shipped more than 48.7 million fitness wearable devices worldwide, which gives it a huge scope to monetize through software installations. This provides the company a recurring source of income, thereby boosting growth prospects.


Zacks Rank & Key Picks

Currently, Fitbit carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the broader technology space are Camtek Ltd. CAMT and Nova Measuring Instruments Ltd. NVMI, each carrying a Zacks Rank #2 (Buy).

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