Why Fitbit Inc's Shares Tanked 18% in January

By Travis Hoium Markets Fool.com

What happened

Continue Reading Below

Shares of fitness band maker Fitbit Inc (NYSE: FIT) fell 17.9% in January according to data provided by S&P Global Market Intelligence, hitting a new 52-week low after the company reported preliminary results. And 2017 isn't shaping up to be much better.

So what

On January 30, management announced preliminary fourth quarter results, giving investors a preview of how bad the business has gotten. Revenue is now expected to be $572 million to $580 million from a previous guidance of $725 million to $750 million, a shocking result for a company that was expecting growth to pick up steam this year. And on the bottom line Fitbit is expecting to lose $0.51 to $0.56 per share on a non-GAAP basis.

Image source: Fitbit.

New products that were supposed to give the company's shares a jolt haven't performed up to expectations, and that's putting a lot of pressure on the business. As a reaction, management has said it would cut operating expenses by about $200 million to a run rate of $850 million and eliminate about 6% of its workforce. But even after the cost reductions, management expects to have a loss of $0.22 to $0.44 per share in 2017.

Continue Reading Below

Now what

Fitbit is a mess right now, fighting improving wearable products from smartphone makers like Samsung and Apple on one side and specialized products like Garmin and Suunto in specific markets. Fitbit can't quite figure out how to fit into the market, so it's trying to make a product for everyone, which leads to high operating costs -- and now losses.

I don't see how Fitbit overcomes these challenges and emerges as a sustainable business long-term. And that's something investors are starting to realize right now, which is why the stock is at a new low.

10 stocks we like better than Fitbit
When investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*

David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now... and Fitbit wasn't one of them! That's right -- they think these 10 stocks are even better buys.

Click here to learn about these picks!

*Stock Advisor returns as of January 4, 2017

Travis Hoium owns shares of Apple. The Motley Fool owns shares of and recommends Apple and Fitbit. The Motley Fool has the following options: long January 2018 $90 calls on Apple and short January 2018 $95 calls on Apple. The Motley Fool has a disclosure policy.