The recent revelation that military personnel's use of a fitness app could reveal the location of military bases -- and thus put military personnel and national security at risk -- likely gave Fitbit (NYSE:FIT) investors a jolt, since it is one of the platforms on which fitness buffs could use the Strava app, which bills itself as "connecting the world's athletes."

While Strava, according to TechCrunch, has disabled a tracking feature and is "reviewing features that were originally designed for athlete motivation and inspiration to ensure they cannot be compromised by people with bad intent," there's still a possibility that fitness trackers and smartwatches that share information about the user's location and activity will be banned in sensitive areas. That's something to think about, but it certainly isn't the only thing that should be giving Fitbit investors pause.

Slowing the pace

Shares of Fitbit have tumbled roughly 30% since analysts at Stifel Nicolaus in December downgraded the stock from "hold" to "sell," based on concerns about sales growth.

Through the first three quarters of 2017, Fitbit sales barely crested over the $1 billion mark, roughly 35% below the year-ago level, while adjusted net losses widened, to $56.5 million from a $100 million profit in the year-ago period. The leading fitness tracker has also gone from being free-cash-flow-positive to negative after burning through some $50 million in nine months.

Although analysts expect revenue growth to return in 2018 at around a 5% rate, it's not nearly as much as needed to hit breakeven, let alone turn a profit.

Lack of support

Part of the problem was the release of Fitbit's next-gen Ionic device. Although it was built with technology acquired from Pebble, another smartwatch maker, and was supposed to make up for the deficiencies of the Blaze, the first Fitbit product designed to be more than a single-purpose device and to compete with the Apple Watch received a less-than-warm reception.

Despite supporting third-party apps and having far superior battery life than Apple Watch, the Ionic wasn't a hit. Text messaging, notifications, and arguably most importantly, integration with phone calls, was anything but seamless.

Swimmer wearing a Fitbit Ionic smartwatch

Image source: Fitbit.

Analysts at Morgan Stanley were hinting in December that sales were lackluster and that the Blaze may actually outsell Ionic, so when Fitbit failed to provide sales data for the device last month, even as it announced that the number of active users of its devices had jumped to 25 million, it unleashed a sense of foreboding that Wall Street was right, and uptake by consumers probably is very weak.

Falling further behind

Fitbit lost its position atop the wearable-devices market last year, coming in third behind Apple and Xiaomi, according to IDC. Researchers at IDC expect the global wearables market to grow at a compound annual growth rate of 18.4% through 2021, hitting 222.3 million devices. But despite Fitbit's Charge remaining extremely popular, IDC says those kinds of devices "are quickly becoming commodities" and only will achieve single-digit growth. That's going to put more pressure on Fitbit's updates to the Blaze and Charge when they're eventually released, along with future iterations of the Ionic.

Apple continues to be a tough competitor, reportedly shipping 8 million Watches in the fourth quarter and 18 million for all of last year, a 54% increase from 2016. And the market is forever getting more crowded with Garmin, Samsung, and others putting out more devices.

It's obviously not all gloom and doom for Fitbit. While it failed to give an update on Ionic sales, its active user base grew almost 8% from last year. That shows it still has staying power, but perhaps only as the manufacturer of an increasingly commoditized product. That could make it a takeover target for a larger player looking to get into the space or improve its existing position, but investors might not want to hang around waiting for an eventuality that may never come.

Fitbit is set to report fourth-quarter and 2017 results on Feb. 26. Investors will want to tune in to what management has to say. Even if national security doesn't make the agenda, there's plenty for them to mull over.

Rich Duprey has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Apple and Fitbit. The Motley Fool has the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool has a disclosure policy.