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FitBit Downgraded on Weak Ionic Sales, Shares Fall 7.62%

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Fitbit, Inc. has reportedly been downgraded by Stifel Nicolaus analyst Jim Duffy. The analyst downgraded his rating form Hold to Sell, prompting a decline of 7.62% in its share price. However, he maintained his target price of $6 on the stock.

The company’s growth has been hampered by the popularity of smartwatches in the fitness wearable category, lack of upgrades among existing users and lackluster growth in the Asia Pacific region.

The impact of these headwinds has been significant on the stock.

Notably, the company’s shares have lost a mammoth 80% since Jun 18, 2015, the day it started trading on the New York stock exchange at $30.40. Also, the stock has underperformed the industry on a year-to-date basis. While the industry has gained 17.2%, the stock has lost 13.9%.

Why the Downgrade?

This activity tracker and fitness device maker introduced its first ever smartwatch, the Ionic, in August this year. The company's inaugural smartwatch features Fitbit's signature fitness tracking capabilities, as well as new contactless payment and music pairing options. It can also be paired with the smartphone in order to receive notifications and alerts from apps such as Facebook , Instagram, Snapchat SNA and many more.

The smartwatch priced at $299.95 was supposed to help the company turn profitable again. Unfortunately, it didn’t work for Fitbit. The analysts said that the new device wasn’t catching on enough to offset the decline in Fitbit’s sales. Not even the strong holiday sales during Thanksgiving through Cyber Monday could bring an uptick in Ionic demand.

He was concerned about the increased inventories of the Ionic piling up at retailers, indicating soft demand for the product in the near future. Taking into account, the continuous loss posted by the wearable company in the last three quarters, the analyst expects Fitbit to remain unprofitable in 2018.

Jim Duffy said, “Exiting 2017, innovation has failed to both unlock any meaningful healthcare business opportunities and inspire meaningful new consumer interest in the category,” adding, “While monetization avenues in the digital health space remain conceptually intriguing, realization of the opportunity has been underwhelming to date and there is nothing tangible to point to return on the associated R&D investment spending.”

Fitbit, Inc. Price and Consensus

 

Fitbit, Inc. Price and Consensus | Fitbit, Inc. Quote

Conclusion

Fitbit, which became a prominent name for its simple fitness wearables, has been hurt by massive competition in the market.

It faces competition in both the high and low-end product range. On the high-end front, it competes with Apple (AAPL - Free Report) Watch. Although Fitbit expected Ionic to help the company take on Apple, it is hardly an easy task to compete with one of the biggest companies in the world. Also, many big manufacturers are developing connected devices on Google's Android operating system.

On the lower end, fitness-tracking devices from Jawbone, Garmin Ltd (GRMN - Free Report) and Xiaomi also pose tough competition.

Even the launch of its flasgship Ionic and addition of innovative features have not helped it stay ahead of its competitors. However, we need to wait for a while and see if Fitbit’s new products can help it gain any meaningfully share from the rising opportunities in the health care business.

Fitbit has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank stocks here.

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