Fitbit Inc. (NYSE:FIT) stormed onto the public markets in 2015 just as enthusiasm was building for smartwatches and connected fitness devices.

But instead of bulking up investors' portfolios, as many had hoped, Fitbit stock has proven to be nothing but a couch potato. Today, shares of the fitness-tracking specialist are trading just north of $5, a more-than-80% drop from its IPO price of $30.40, and a far cry from its all-time high of $47.60 in July 2015.

A selection of Fitbit products

Image source: Fitbit.

The stock's slide has paralleled weak sales performance as revenue growth turned negative in the fourth quarter of 2016 and seems likely to stay that way this as the company has declared 2017 to be a "transition year," and said it will have to clear out inventory in retailers in the first half of the year.  

FIT Chart

FIT data by YCharts.

Still, the company continues to sell millions of devices a quarter, with 3 million devices sold in the first quarter, though that was down from 4.8 million the year before.

Almost all of Fitbit's revenue comes from device sales. It brings in ancillary income, less than 1%, from a subscription-based virtual personal trainer program it calls Fitbit Premium and FitStar, an subscription-based interactive exercise video experience.

Out with the old

Today, Fitbit offers eight fitness trackers, ranging from the clippable Fitbit Zip at $59.95 to the Fitbit Surge, its fitness "super watch" that retails at $249.95. It also sells the connected scale, Aria. 

In its first-quarter earnings report, Fitbit disclosed that 84% of its sales in the period came from products introduced in the last 12 months, including the Fitbit Charge 2, Fitbit Alta HR, and Fitbit Flex 2.

That statistic shows how important new devices are in a tech-based industry like connected fitness, where competitors including Under Armour, Garmin, and Apple are all innovating to gain market share. Fitbit continues to improve its software with additions like sleep-stage tracking, which records users' light, deep, and REM sleep.

As for the company's most popular device, Fitbit does not release sales data on individual trackers, but third-party reports indicate that the Fitbit Charge 2, the update to the Fitbit Charge and Fitbit Charge HR, is the company's most popular product. 

The Charge 2 offers heart rate and activity monitoring with connected GPS that can track runs and bike rides, as well as notifications linked from your smartphone. It retails at a suggested price of $149.95.

On a global level, the majority of Fitbit's sales come from the U.S., as its home country made up 71% of its revenue last year. International revenue is growing faster than domestic as the company sees a substantial opportunity abroad. Sales outside the U.S increased 32% last year, compared to just 11% domestic growth. The EMEA (Europe, Middle East, and Africa) region was particularly strong, with 86% growth, though that was partially offset by a 26% decline in the APAC (Asia-Pacific) region. 

Fitbit's biggest challenge

Fitbit has a number of valuable assets including retail distribution in 55,000 stores in 65 countries and a brand name that is essentially synonymous with its product category. 

However, the company has suffered from poor user retention. As of last year, it had sold 60 million devices and had 50.2 million registered users, but just 23.2 million active users. In other words, of the 50 million people who have started using a Fitbit device, more than half have quit. There are a wide range of reasons for these users have lapsed, but the underlying one seems to be that they don't find the product useful.

Fitbit devices are popular gifts; 50% of its revenue came during the holiday quarter as recently as 2014, which may help explain its poor user retention, but the company can't use that as an excuse. Sales through corporate wellness channels may create a similar problem.

Making better devices that users need and come to depend on rather than viewing them as disposable is the best way to turn around Fitbit's performance and its stock.

It's a positive sign that so many of its sales have come from new products, since that will motivate the company to innovate, and it should inspire satisfied users to update their products by repurchasing. In its most recent quarter, the company said that 36% of buyers were repeat customers and 40% of those were customers who had been inactive for 90 days or longer. 

That's a promising sign as well, but Fitbit's bottom line has fallen into the red, and the bears are roaring: 22% of the stock is sold short. Wall Street has largely lost faith, and the stock has received four downgrades and just one upgrade from analysts since November.

It will be an uphill battle as Fitbit seeks to move back to financial health. Performance should improve in the second half of the year as the company clears out retail inventory, but in order to succeed in the long term, it will need to improve the stickiness of its products. Until then, the value proposition for the stock and the devices looks weak.

Jeremy Bowman owns shares of AAPL and UA. The Motley Fool owns shares of and recommends AAPL, Fitbit, UAA, and UA. The Motley Fool has a disclosure policy.