Fitbit Falls Behind Apple & Xiaomi In Wearables Shipments

After years of maintaining its leading position in the wearables market, Fitbit, Inc. (NYSE:FIT) finally lost its ground to Apple (NASDAQ:AAPL) and Xiaomi.

According to the latest International Data Corporation (IDC) report released on Monday, Apple and Xiaomi are tied at the top in terms of first-quarter 2017 shipment volumes, with each having shipped 3.6 million units. Fitbit has been pushed back to the third position with 3 million units shipped. Samsung (KS:005930) having shipped 1.4 million units and Garmin (NASDAQ:GRMN) 1.1 million units hold the fourth and fifth positions, respectively.

Fitbit’s shipment decreased a massive 37.7% on a year-over-year basis while that of Apple surged 64.1%. In terms of market share. Xiaomi is leading with 14.7% market share followed by Apple with 14.6% share. Fitbit holds 12.3% share of the market while Samsung and Garmin hold 5.5% and 4.6% share, respectively.

What’s Wrong with Fitbit?

Fitbit’s growth has been slowing down with smartwatches outshining the fitness wearable category, influx of new wearables, lack of upgrades among existing users and lackluster growth in the Asia Pacific region.

The company’s shares have lost a mammoth 81.8% since Jun 18, 2015, the day on which the company began trading on the New York stock exchange.

Despite the broad range of devices Fitbit provides at different price points, it has been facing tough competition at both the high- and low-end products. At the high end, there is Apple’s multi-functional Apple Watch, which renders Fitbit devices useless. There are other big manufacturers who are developing connected devices on Alphabet (NASDAQ:GOOGL) owned Google's Android operating system. At the lower end, the company’s biggest competitors are Xiaomi and Garmin.

With Fitbit bringing in counter strategies through the roll out of new products, buying smaller companies (Coin, Pebble, and Vector) and increasing marketing spend; its operating expenses as a percentage of revenues have increased to 70.2% in the first quarter of 2017 from 42.5% in the year-ago quarter. Increasing expenses coupled with slower revenue growth resulted in the company posting a net adjusted loss of 25 cents per share in the first quarter of 2017.

Fitbit, Inc. Net Income (TTM)

Fitbit underwent an executive shakeup in March aimed mainly at turning around its ailing fortunes. Chief business officer, Woody Scal and executive vice president, Interactive, Tim Roberts stepped down.

The company promoted Samir Kapoor, vice president of Engineering to senior vice president of Device Engineering. Kapoor now oversees firmware, hardware and advanced R&D under chief technical officer Eric Friedman. Fitbit hired Jeff Devine as its new executive VP of operations. He is in charge of Fitbit's operations, customer service, and quality control under chief executive officer James Park.

Fitbit has also said that it will realign under two main businesses - Consumer Health & Fitness and Enterprise Health. The Consumer Health & Fitness business will focus on delivering more efficient health and fitness devices, diversifying into the smartwatch category and offering premium software and services.

Enterprise Health, on the other hand, will focus on developing and strengthening relationships with employees, insurance companies, health systems and healthcare partners.

While investors will keep a watch on whether these moves work, we believe Fitbit still has a chance to make a comeback. The company is well poised to diversify as it has a solid user base (50 million), strong presence in corporate wellness and assets that make it a force to reckon with in the digital health space.

Currently, Fitbit carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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