Can Ionic Save Fitbit Inc (FIT) Stock From Activity Tracker Sales Drop?

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Second-quarter wearable numbers are in and they show that Fitbit Inc (NYSE: FIT ) launched its new Ionic smartwatch just in time. Smartwatch sales showed strong growth, up 60.9% year-over-year. Oh, and for the first time, sales of basic fitness trackers - basically everything in Fitbit's product portfolio up until now - declined. These numbers suggest FIT stock is in for a rough ride.

Source: Fitbit

That is, unless the Fitbit Ionic is a success…

IDC's Q2 wearable numbers released Aug. 31 show that Apple Inc. (NASDAQ: AAPL ) continues to dominate the fast-growing smartwatch market. Apple Watch sales were up 49.7% compared to last year. The smartwatch leader captured 13% of the overall wearables market. That's up from 9.6%, good enough for second place overall and within striking distance of first place Xiaomi (at 13.4%).

When we reported back in May that Fitbit sales had slowed to the point that it was in third place among wearables makers, the company disputed the numbers. But there's no arguing at this point. IDC's numbers show Fitbit sales down 40.9% on the quarter, and the former wearables market leader remains in third place.

Worse for the company, the sales of basic activity trackers (defined by IDC as lacking the ability to run third-party apps) were down 0.9% this quarter. That's a bigger number than it sounds, because it marks the first-ever decline in fitness tracker sales.

FIT stock is already down 61% in the past 12 months and off its 2015 high by 87%. Ominous signs are clear in the fact that virtually its entire product line is segmented in a part of the activity tracker market that has begun to shrink and China's Xiaomi is gobbling sales by seriously undercutting its prices.

But there is hope, in the form of the newly announced Fitbit Ionic smartwatch.

Fitbit Ionic to the Rescue?

In its analysis of Q2 wearables sales, IDC noted that basic wearables served as a gateway for consumers who are now demanding more-sophisticated devices. Smartwatches, in other words.

Also spiked out by IDC:

"Equally important to device features will be the algorithms tracking workouts and providing health insights. There is growing interest from the medical industry to adopt wearables and consumer expectations are also on the rise. This is where companies like Apple and Fitibit have the potential to maintain their lead as their investments in the tracking and perhaps diagnosing of diseases will be a clear differentiator from low-cost rivals."

Both of these points provide a glimmer of hope for FIT stock.

The new Fitbit Ionic is a full-fledged smartwatch that competes directly with the Apple Watch. It's able to run third-party apps, has a built-in GPS, supports contactless payments and boasts a class-leading four days of battery life. Plus it incorporates Fitbit's pedigree in fitness tracking, giving it an instant advantage over many smartwatch competitors when it comes to activity tracker owners looking to move on to something more capable, something more-sophisticated .

IDC's point about health insights and potential medical applications also has upside for FIT stock.

The Fitbit Ionic may be late to the smartwatch game, but it's packed with the latest health sensors, including ones that the Apple Watch lacks. FIT improved the PurePulse heart rate monitor used for the Ionic, and included an all-new sensor for tracking blood oxygen levels. The company is also working on being able to track sleep apnea with the Fitbit Ionic - an often serious condition that afflicts 25 million Americans.

The potential health tracking and/or diagnosis benefits of the Fitbit Ionic should make it an attractive option not only for the medical community, but also for employers (and their health insurers) who increasingly offer health and fitness trackers to employees as part of corporate wellness programs .

Watching For FIT Stock Reaction

Fitbit's activity trackers range in price from $60 to $230, with its top-seller the Charge 2 going for $150. The Fitbit Ionic goes for $299.95 and buyers have the option to accessorize the smartwatch with a variety of add-on bands.

FIT reported revenue of $353 million from sales of 3.4 million devices in its latest quarter. With the Ionic smartwatch in its product mix, IDC's numbers make it clear that the key to any FIT stock recovery is the Ionic smartwatch. If the company can convince enough consumers moving up from its basic fitness trackers to choose the Ionic over the Apple Watch, it can significantly grow its revenue even if it sells fewer devices overall.

FIT stock investors will be keeping their eyes on two things in the next few weeks. The first is Fitbit Ionic sales. FIT is taking pre-orders now and says the smartwatch should be shipping in 2-3 weeks. The second is Apple's iPhone event on September 12 , where the company is rumored to be taking the wraps off the Apple Watch series 3. If that happens, what Apple reveals could make or break the Ionic and Fitbit's prospects along with it.

As of this writing, Brad Moon did not hold a position in any of the aforementioned securitie s.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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