In this segment from Market Foolery, Chris Hill, Jason Moser, and Taylor Muckerman share their bearish take on Fitbit (NYSE:FIT), which is making headlines after one of its devices allegedly exploded, bringing back memories of what happened with the Samsung Galaxy Note 7. This is coming at a very bad time for the company, which has likely peaked along with its space.
A full transcript follows the video.
This video was recorded on April 24, 2017.
Chris Hill: Some good news for Samsung today. They are no longer the only consumer tech company making headlines for having their products explode.
Jason Moser: [laughs] I love how you framed that.
Hill: A Wisconsin woman said she sustained second-degree burns after her Fitbit Fitness tracker exploded on her wrist. Diana Mitchell had only owned her Fitbit Flex 2 for two weeks when the alleged incident occurred as she was reading a book. She said there was no indication there was anything wrong with the device, I'm assuming right up until it exploded on her wrist. She was reading a book! She was just hanging out reading!
Taylor Muckerman: She should have been walking. It was a warning shot. "Get up and move!"
Hill: You think that's what it was?! [laughs]
Moser: It's like the boxing glove alarm clock, giving you that nudge.
Hill: That, to me, is the most amazing part of this story. It's not, "She was out there running and exercising, burning it up ... "
Muckerman: "The heat of the sun ... "
Hill: Yeah. Some extenuating circumstances, no. She was just hanging out reading a book. And if you're Fitbit, let's give them the benefit of the doubt. Let's say this is the only time this happens, it's not a Samsung 7 situation where there are multiple incidents. Let's say this is the only time this happens. If you are Fitbit, this is absolutely the last thing you need. Even if it's just one time, this is the last thing you need.
Muckerman: You're not nearly as well diversified as Samsung. They could recover a little bit better.
Moser: We were having fun, but I certainly don't want to make light of anyone having something that explodes on them.
Hill: Yeah, you saw the picture.
Moser: I did, I don't want that happening to me. The thing is, I can't help it go back to this question, I wonder how much this actually matters for these guys at this point. That old saying, if a tree falls in the woods and nobody's there to hear it, does it make a sound? For Fitbit, does it really matter at this point? Isn't this company kind of done anyway? I think the fitness device market, perhaps, has had its day in the sun.
Hill: Really? You think they're going away?
Moser: No, I don't think they're going, but I think the novelty of the concept has worn off. I think the people who really want them have them. And I don't know what the growth opportunity there is. I think Fitbit trying to become something more than this device company told us a lot right there. They even know, they had to be a little bit more than a hardware provider in order to be successful in this line of work, because it's really not about the hardware, it's about what the hardware is telling you. And I think a lot of these devices have had the hurdle of making sure the device is giving you good information.
Hill: And not exploding.
Moser: And not exploding. But, I feel like they've lost their novelty. I feel like the people who want them have them. And yeah, this certainly doesn't help them at all. But I don't even know that it really matters at this point.
Muckerman: Your phone can do it, there's plenty of watches that can do it. If Under Armour has their druthers, their clothes are going to do it.
Moser: They have shoes that are doing it. Now, you can wear shoes that will tell you all this stuff, and you don't have to wear this little band. Now, if Under Armour shoes start exploding, we have a big problem.
Muckerman: If you're close to the finish line, maybe that helps you out a little bit.
Moser: The neat thing about the wearables market is figuring that it doesn't actually have to be a watch or some wrist device, it could be something a bit more discreet and not so obvious. I think those are the implications that the wearables market -- that, to me, is the forward-looking nature of it. I think Fitbit hasn't really presented us with anything beyond devices that may or may not explode on your wrist.
Hill: Do you think 2017 is the year that someone buys Fitbit?
Moser: I don't think so.
Moser: I don't know why you would buy it. Why would you buy it? That's the question.
Hill: I think you would buy it because the brand, assuming no more explosions take place and burn people's wrists --
Moser: Yeah, let's hope this is an isolated incident.
Hill: Absolutely. I think there is some value there, more than zero, is the way I would put it.
Muckerman: But are they willing to sell for less than --
Moser: The example I go back to is LeapFrog. I think LeapFrog was a very good case study of something where, generally speaking, you like what they stand for. It was building devices for kids to help them start learning younger than ever before. But the problem was, they immediately became obsolete.
Muckerman: You put an app on an iPad for that, yeah.
Moser: Exactly. So, it was less about the device and more about the information the device was giving you, and there are other ways to get that information out there, and LeapFrog's technology was really rendered obsolete in short order. And then, as an acquirer, you have to look at that and say, "Why do I want this? Is this something that's going to require more money to fix or turn around than is worth it?" Because I'm certain that businesses like Apple, for example, are going to have better ways to get that information out of consumers, and parse all of that data and actually make something of it. So, I don't know, I guess I'm not clear as to why someone would want to acquire it.
Hill: Remains to be seen.
Chris Hill owns shares of Under Armour (C Shares). Jason Moser owns shares of Apple, Under Armour (A Shares), and Under Armour (C Shares). Taylor Muckerman owns shares of Under Armour (C Shares). The Motley Fool owns shares of and recommends Apple, Fitbit, Under Armour (A Shares), and Under Armour (C Shares). The Motley Fool has a disclosure policy.
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