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Why Fitbit Inc.’s Stock Tanked After Its Big Announcement

By Motley Fool Staff - Jan 12, 2016 at 9:00AM

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In a week filled with Consumer Electronics Show buzz, the wearables tech company had a bit of the blahs, and its share price felt the effects.

Despite unveiling its new fitness watch, the Fitbit Blaze, at the Consumer Electronics Show, Fitbit's (FIT) shares have dropped by almost one-third recently.

The Blaze may very well be a big contributor to that decline, due to its strong cosmetic resemblance to the Apple (AAPL 0.03%) Watch, but its failure to allow third-party apps, and its lack of new features compared to the company's last hardware update. But it's more likely other factors are playing stronger roles in the decline.

In this clip, Sean O'Reilly and Dylan Lewis talk about the other factors that are causing Fitbit's trouble.

A full transcript follows the video.

 

This podcast was recorded on Jan. 8, 2016.

Sean O'Reilly: So, what's up with Fitbit? Talk to me.

Dylan Lewis: Fitbit was one of the first big headlines coming out of CES this year. They unveiled the Fitbit Blaze, which is basically an update to their line. It's a new product. It's really kind of like an Apple Watch in its design. When you look at a Fitbit ...

O'Reilly: Does it still look ... I don't want to say rubbery, but do you know what I'm talking about?

Lewis: Oh, no, it's a departure from that design, and it looks much more like a smartwatch than a fitness tracker band.

O'Reilly: [COUGHS] Apple Watch.

Lewis: But the company is calling it a fitness watch rather than a smartwatch, and we can get into some of the things that it can and can't do, and maybe why they're doing that, as an explanation. But, some highlights. There's a five-day battery life on the product.

O'Reilly: What.

Lewis: Which, obviously, compares very favorably to the Apple watches.

O'Reilly: I want one of those batteries in my computer, jeez.

Lewis: I think Apple Watch has like a 24 hour life.

O'Reilly: At best.

Lewis: Yeah, about a day. It retails for $200. It's kind of on the expensive side for Fitbit, but it still cheaper than the Apple Watch. I think there's one product in Fitbit's line that's more expensive than that.

O'Reilly: Can I get the Blaze in gold like the Apple Watch, and pay like $10,000?

Lewis: They were saying ...

O'Reilly: Are you serious?! I was joking!

Lewis: No, not that premium model, but you can accessorize the Blaze a little bit more than the other Fitbit options, and you can pull the display out and sub in other holders for it.

O'Reilly: I was telling a joke, and here you go and ...

Lewis: That's the beauty of not overly scripting the show, we get moments like that. But, I think, when you look at the product, there are some major design whiffs here, and I've seen some chatter online about it. The product does not support third-party apps. And this is something where it's very clear, they're calling it a fitness watch rather than a smart watch. When you're using a smart watch, you expect to be able to have third-party apps come in.

O'Reilly: That's, arguably, why the iPhone beat out Blackberry in the early days, because they were so app-friendly. People love apps.

Lewis: Yeah. And you can build out the ecosystem in a much more scalable way if you allow other people to play in your sandbox. And you can have people interact with stuff they're already using on your platform. So, that's kind of a curious thing, a bit of a head-scratcher.

O'Reilly: Was that a conscious decision? Were they incapable of doing that? You see what I'm saying.

Lewis: I don't know if the thought there was like, "By not allowing third-party apps on there, we'll insulate ourselves," but I don't know why they would have done that. It seems like a limiting move for the product. One of the other weird things it was, there's a lack of GPS connectivity. So, the next step up product that Fitbit has ...

O'Reilly: That's important for running, right?

Lewis: Yeah. It's something that, with the Blaze, you can sync up to the GPS tracker on a smartphone, but it is reliant, it's a secondary device because you're relying on the smartphone. And one of the other things -- and I think this is another item that makes it clearly a fitness watch and not a smartwatch in and of itself -- is users can receive text call notifications, but they cannot respond to them on the watch itself.

O'Reilly: Well, I mean, you could get a health alert or something.

Lewis: But you could be aware that you're getting something. But I think part of the beauty of the Apple Watch and things like that is ...

O'Reilly: It's got the little scrolling thing.

Lewis: There's a little bit more build-out there. So, the market ... it didn't ...

O'Reilly: This was bad. This was the bad part, ladies and gentlemen.

Lewis: No, they didn't respond very favorably to it. I think the stock opened at like $30 in 2016, and it's now around $21, $22. Which is a huge haircut. Granted, we are in a pretty big contradictory period over the last couple days.

O'Reilly: Yeah, which China and everything.

Lewis: Huge China concerns. So, there's been a market sell-off anyways.

O'Reilly: The Blaze wasn't the only problem to the market for Fitbit, though.

Lewis: Yeah, there have been a couple other issues. I think one of the things that people who really like Fitbit were curious about is, they broke out this new product, and it's in this go-between area ...

O'Reilly: And it looks like the iWatch.

Lewis: And it looks like the Apple Watch. But they didn't add any refresh to the Charge HR devices, which are their flagship -- like you talked about earlier, like the rubber band products that they're really known for.

O'Reilly: And you would expect a tech company to regularly update their stuff.

Lewis: Yeah. I think those products are more than a year old at this point. If you're going to make a splash with a product unveiling, it's got to be something like that. So, not really paying attention to their core products quite as much maybe worried some people. But there's also the news that there's a class action lawsuit against Fitbit coming, and I believe, I saw the news coming out of San Francisco, I don't know if that's where the suit will actually take place or if that was the news organization that was breaking it. But, basically, it has to do with the heart rate monitoring on the Fitbit Charge HR and Surge models.

O'Reilly: Is it too fast or too slow?

Lewis: The plaintiffs are alleging that it was under-counting their heart rate, which is something that is probably not [safe], right?

O'Reilly: Yeah.

Lewis: If you think you're at ... I don't know what a reasonable heart rate is. But if you're 40 above what you should be ...

O'Reilly: 120 or something like that.

Lewis: Yeah. There are some heath risks there.

O'Reilly: Was it off by 5 or 50?

Lewis: It was off pretty significantly. Someone cited 40 as an example of what it was off by.

Dylan Lewis has no position in any stocks mentioned. Sean O'Reilly has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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