The second quarter of 2019 left a lot to be desired at Fitbit (NYSE:FIT). When an industry is in growth mode, it's rare that a zero-sum game (in which one player's gain is the other's equally matched loss) is the case. But in the world of wearables, it's almost starting to look that way -- at least as far as the battle between Fitbit and Apple (NASDAQ:AAPL) is concerned.

A little wearable industry context

According to tech researcher IDC, wearable devices (which include smartwatches, wristbands, and smart-assistant-enabled headphones) are expected to reach 279 million units shipped every year by 2023, up from an anticipated 199 million units shipped in 2019. Representing nearly 9% yearly average growth, that's hardly peanuts and should be more than enough new business to go around.

Except it isn't, not for Fitbit anyway. After the first quarter of 2019, things admittedly started to look up. Quarterly device shipments went up 32% to 2.9 million, and although the average device was far cheaper than the year prior, it was good for a 10% surge in revenue. Within the total, health solutions service revenue -- a key component of the business if Fitbit is ever to be a viable long-term company -- went up 70% year over year to about $30.5 million. Management said full-year health solutions business would exceed $100 million. In all, it was an imperfect quarter that nevertheless showed promising signs.

That changed fast

The second quarter wasn't nearly as rosy looking. Health solutions got doused with cold water and increased only 16%, and devices sold increased another 30% to 3.5 million, but total revenue only increased 5%. Even worse, third-quarter guidance called for a 10% to 15% decline in total revenue even though total devices sold should continue to rise. Health solutions guidance was also tweaked. Instead of language calling for more than $100 million in annual revenue, the service segment that's supposed to be key to unlocking the door to the healthcare industry is now expected to yield "about $100 million" in 2019.

Apple, on the other hand, stands in stark contrast to Fitbit's fits-and-starts operating performance. During the tech giant's fiscal 2019 third quarter (which corresponds most closely with Fitbit's second quarter), the "wearables, home, and accessories" segment hit new records and was the fastest-growing division at Apple, with sales growing 48% year over year. Services, though nothing close to a comparison to Fitbit's health solutions segment, also notched a 13% year-over-year increase.

While not an apples-to-apples comparison (pardon the pun), this underscores how poorly Fitbit is doing outside of the device production-and-sales business model. Apple's services are well north of $10 billion a quarter, a double-digit-growth enterprise compared to Fitbit's paltry $30-million-a-quarter services segment.

Three Fitbit Versa smartwatches displayed in black, gray, and pink.

The Fitbit Versa smartwatch. Image source: Fitbit.

Time to bail on Fitbit

Amazon CEO Jeff Bezos's famous business mantra, "Your margin is my opportunity," is supposed to be a disruptive mindset that wins over new business over the long term, but Fitbit hasn't nailed a formula for making it work against its megacompetitor Apple. The much larger tech company has deep pockets and a well-developed ecosystem of gadgets, software, and related services that makes simple price undercutting not a valuable enough proposition to woo enough consumers over to the Fitbit cause -- not enough to actually move the needle, anyway.

Fitbit as much as admitted this during its second-quarter earnings call, saying that it underestimated customers' willingness to pay up for feature-rich products. Simply put, Fitbit's strategy looks like a mess that is offering up spotty sales gains and ultimately draining the balance sheet of cash -- even on an adjusted basis, Fitbit has racked up a $74 million loss so far this year.

Once upon a time, I believed that at the very least, Fitbit could get a boost as a takeover candidate; what's a couple billion dollars (much less $844 million, Fitbit's market cap after the most recent drubbing) to a fellow wearable device maker like Samsung or even Google and Android parent Alphabet? But with government regulators getting increasingly skeptical of big tech, data practices, and merger-and-acquisition activity, I'm starting to doubt Fitbit's value as takeover fodder -- at least for the time being.

Put simply, from here on out, I'll be looking for an opportunity to axe my stake in Fitbit until something materially changes. It's been a painful ride, but I can take solace in the fact that at least Fitbit never was a core portfolio holding. Apple holds that spot in the hardware and wearables department, and it looks like its lead will only continue to widen in the years ahead.