Personal Finance

Why Fitbit Stock Is Down 57% in 2016

FIT Chart

FIT Chart

FIT data by YCharts

So what: Trouble started early for Fitbit this year. The company launched the $200 Blaze smartwatch on Jan. 5, and the stock fell sharply on the news. The Blaze represented an attempt to compete head-on with the Apple Watch, a move that investors didn't like.

On Feb. 22, Fitbit reported its fourth-quarter results, easily beating analyst estimates for revenue and earnings. Revenue grew by an impressive 92% year over year, but the company's guidance for the first quarter was below expectations. A slew of analyst downgrades followed, with a common concern being the long-term picture.

On May 4, the company again handily beat analyst estimates when it reported its first-quarter results. Revenue jumped by 50% year over year, driven by strong sales of the Blaze and the Alta, a fashionable fitness tracker. Each new product moved over 1 million units each, accounting for nearly half of total revenue collectively.

The stock tumbled again, this time driven by massive spending increases that drove down earnings. Total operating expenses exploded, rising 171% year over year during the quarter. Research and development spending more than tripled, and sales and marketing spending more than doubled. Fitbit CEO James Park defended the heavy spending: "The strong growth and defensibility of our business continues to be powered by product innovation, the network effects of our community, our expanding global distribution, and investment in our brand."

Now what: While Fitbit is still growing revenue rapidly, the fear is that the bottom will eventually fall out. GoPro (NASDAQ: GPRO) , another consumer gadget company, reported strong revenue growth every quarter until the holiday season of 2015 turned into a disaster . GoPro's sales fell off a cliff, and a recovery is nowhere in sight. Investors are assuming that Fitbit will follow a similar path.

Heavy spending is a sign that Fitbit is feeling pressure from competing products, and while the company's fitness bands have proved to be popular, there's a real risk that the market is near saturation, and that more capable products such as the Apple Watch will ultimately prove more appealing to consumers. There's a tremendous amount of uncertainty surrounding Fitbit, and investors have responded by pushing shares down sharply this year.

A secret billion-dollar stock opportunity

The world's biggest tech company forgot to show you something, but a few Wall Street analysts and the Fool didn't miss a beat: There's a small company that's powering their brand-new gadgets and the coming revolution in technology. And we think its stock price has nearly unlimited room to run for early in-the-know investors! To be one of them, just click here .

Timothy Green has no position in any stocks mentioned. The Motley Fool owns shares of and recommends AAPL and GPRO. The Motley Fool has the following options: long January 2018 $90 calls on AAPL and short January 2018 $95 calls on AAPL. The Motley Fool recommends FIT. Try any of our Foolish newsletter services free for 30 days . We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy .

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.

In This Story

GPRO FIT

Other Topics

Stocks

The Motley Fool

Founded in 1993 in Alexandria, VA., by brothers David and Tom Gardner, The Motley Fool is a multimedia financial-services company dedicated to building the world's greatest investment community. Reaching millions of people each month through its website, books, newspaper column, radio show, television appearances, and subscription newsletter services, The Motley Fool champions shareholder values and advocates tirelessly for the individual investor. The company's name was taken from Shakespeare, whose wise fools both instructed and amused, and could speak the truth to the king -- without getting their heads lopped off.

Learn More