There was no shortage of naysayers last week as shares of Fitbit (NYSE:FIT) imploded. The leading maker of fitness trackers was more of a bleeding maker of wearables, shedding 35% of its value after posting disappointing quarterly results for the third quarter.
A deluge of analyst downgrades followed, but let's zero in on the move by Barclays analyst Matthew McClintock. He downgraded the shares to Equal Weight on Friday morning. He also slashed the stock's price target from $24 to $10. Soft demand as we head into the critical holiday shopping season is the concern here, something that was echoed by many Wall Street pros after Fitbit's shocking guidance for the current quarter.
However, the Barclays move stings a bit because of what was going on at Barclays PLC (NYSE:BCS) a year ago. The banking giant made waves 13 months ago when it offered subsidized Fitbit devices for as many of its 75,000 employees in the U.S. and U.K. that wanted them.
The news out of Barclays didn't generate the kind of buzz and headlines that a similar deal at cheap chic retailer Target (NYSE:TGT) did a few weeks earlier. The Target deal was larger, of course, with more than 335,000 employees potentially eligible for a free Fitbit. It's also easier to picture Target employees walking around the mammoth discount stores than it is for investment bankers or members of the Barclaycard marketing team logging fitness points at their desks. The Target deal was the one that turned heads, but by the same token the Barclays analyst downgrade probably gets that turned head shaking.
Beyond the downgrade
Barclays' McClintock obviously didn't have to consider his parent company's decision a year earlier to subsidize activity monitors. You want analysts to be disconnected from any potential bias. However, it should remind investors of a logical follow-up question: whatever happened to corporate sales?
As Target, Barclays, and other corporations began bankrolling the outfitting of Fitness bracelets for their employees it should've opened up the floodgates. This wouldn't be a company that needs Flex 2 and Charge 2 -- the two new products it rolled out two months ago -- to carry the holiday quarter.
Fitbit did talk up its role in corporate wellness programs during last week's call. It brought up recent wins including Pitney Bowes and Dr. Pepper/Snapple Group. It was loaded with nuggets from research studies showing how companies are saving money on health insurance and how employee participation rates move higher when Fitbit's involved. It makes perfect sense, but then we get to Fitbit's guidance for the holiday quarter. It's eyeing just 2% to 5% in year-over-year revenue growth for the current quarter so either the wheels have fallen off retail demand or corporate interest.
Investors have clearly cooled on the stock -- for now -- but it will have some bigger questions to answer in the future if growth doesn't get back on track come early next year.