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Lukewarm Ionic Reviews Knock Fitbit Down a Notch

By Evan Niu, CFA - Sep 20, 2017 at 10:00AM

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With so much riding on the new smartwatch, it's no wonder that investors were bummed by lackluster reviews.

Share of Fitbit (FIT) fell 5% yesterday after reviews of its forthcoming Ionic smartwatch started to hit the web. The company has a lot riding on its new device, as consumer preferences in the wearables market have quickly shifted toward full-featured smartwatches that support third-party apps. Prior to yesterday's drop, shares had risen 10% since the Ionic was announced late last month. The stock didn't even flinch when Apple (AAPL -0.14%) unveiled its Apple Watch Series 3 last week, which the Ionic will inevitably be compared to.

Spoiler alert: The reviews were rather lukewarm.

Three Fitbit Ionics stacked on top of each other

Image source: Fitbit.

Survey says

Here's a small collection of initial reviews:

  • "First Look: Fitbit Ionic Boosts Exercise Features But Lags as a Smartwatch" (Consumer Reports)
  • "Fitbit Ionic review: A great fitness tracker, a mediocre smartwatch" (Macworld)
  • "Fitbit Ionic review: Tops the Apple Watch with fitness focus, long battery life, detailed sleep tracking" (ZDNet)
  • "Fitbit's first smartwatch, the Ionic, can't compete with the Apple Watch" (Mashable)
  • Fitbit Ionic review: Can it compete with the Apple Watch? (Men's Fitness)
  • "I Hate Almost Everything About Fitbit's New Watch -- But There Is One Thing I Love" (Gizmodo)

One prevalent theme is that the Ionic's greatest strength is Apple Watch's greatest weakness: battery life. With over four days of juice, the Ionic crushes Apple Watch in longevity, which also enables important health features like sleep tracking. Playing to Fitbit's strengths, the Ionic is also a champ at fitness-tracking functions thanks to a robust set of sensors that facilitate more detailed data collection than rivals (including Apple Watch).

There's also the Fitbit Coach service that proactively guides users. Fitbit Coach is the company's most earnest effort to date to expand its premium service offerings to generate recurring revenue (Fitbit Coach costs $8 per month, or $40 per year). It's a rebranded version of Fitstar, which Fitbit acquired in early 2015 for $17.8 million. In the years since the acquisition, Fitbit has made essentially no progress expanding this part of the business: Less than 1% of revenue comes from subscription-based premium services.

Unfortunately, that's about where Ionic's strengths end. The Ionic reportedly lags in all of the other areas that mainstream consumers are likely to prioritize when shopping for a smartwatch -- things like managing and interacting with phone calls, text messages, and notifications. There's also a dearth of third-party apps, which, while expected, isn't great. The catalog will grow, but it's going to take time. Fitbit Pay also lacks the broad support of financial institutions that Apple Pay enjoys, with only a handful currently on board.

Ionic sounds like a great fitness tracker and a middling smartwatch, which makes it hard to justify the $300 price tag. For an extra $30, consumers can get a GPS-only base Apple Watch Series 3, which is a much better smartwatch and a comparably good fitness tracker.

Fitbit's turnaround depends on Ionic

It's not a stretch to say that this holiday shopping season will be pivotal for Fitbit, and may determine the company's overall fate. Unit sales are plunging, and Fitbit has invested a lot of time and money into developing the Ionic, including three different acquisitions that contributed to Ionic's development.

Despite going public just two years ago, the company's already in turnaround mode. And that turnaround will absolutely hinge on the success or failure of Ionic -- which is why investors were none too happy to see the lackluster reception thus far.

Evan Niu, CFA owns shares of Apple. The Motley Fool owns shares of and recommends Apple and Fitbit. The Motley Fool has a disclosure policy.

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