In this segment from Market Foolery, Chris Hill, Jason Moser, andTaylor Muckerman share their bearish take on Fitbit (NYSE: FIT), which is making headlines after one of its devices allegedly exploded, bringing back memories of what happened with theSamsung Galaxy Note 7. This is coming at a very bad time for the company, which has likely peaked along with its space.
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A full transcript follows the video.
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This video was recorded on April 24, 2017.
Chris Hill:Some good news for Samsung today. They are no longer the only consumer techcompany making headlines for having their products explode.
Jason Moser:[laughs]I love how you framed that.
Hill:AWisconsin woman said she sustainedsecond-degree burns after herFitbitFitness tracker exploded on her wrist. Diana Mitchell had only owned herFitbit Flex 2 for two weeks when thealleged incident occurredas she was reading a book. She said there wasno indication there was anything wrong with the device,I'm assuming right up until it explodedon her wrist. She was reading a book! She was justhanging out reading!
Taylor Muckerman:Sheshould have been walking. It was a warning shot. "Get up and move!"
Hill:You think that's what it was?![laughs]
Moser:It'slike the boxing glove alarm clock,giving you that nudge.
Hill:That,to me, is the most amazing part of this story. It's not, "She wasout there running and exercising, burning it up ... "
Muckerman:"The heat of the sun ... "
Hill:Yeah. Someextenuating circumstances, no. She was just hanging out reading a book. And if you're Fitbit, let's give them thebenefit of the doubt. Let's say this is the only time this happens,it's not a Samsung 7 situation where there are multiple incidents. Let's say this isthe only time this happens. If you areFitbit, this is absolutely the last thing you need. Even if it's just one time,this is the last thing you need.
Muckerman:You'renot nearly as well diversified as Samsung. They couldrecover a little bit better.
Moser:We werehaving fun, but I certainly don't want to make light of anyonehaving something that explodes on them.
Hill:Yeah,you saw the picture.
Moser:I did, I don't want that happening to me. The thing is,I can't help it go back to this question, I wonderhow much this actually matters for these guys at this point. That old saying,if a tree falls in the woods and nobody's there to hear it, does it make a sound? For Fitbit,does it really matter at this point? Isn't this company kind of done anyway? I think the fitness device market, perhaps, has had its day in the sun.
Hill:Really? You think they're going away?
Moser:No,I don't think they're going,but I think the novelty of the concept has worn off.I think the people who really want them have them. And I don't know what the growth opportunity there is. I thinkFitbit trying to become something more than thisdevice company told us a lot right there. They even know, they had to bea little bit more than a hardware provider in order to be successfulin this line of work,because it's really not about the hardware,it's about what the hardware is telling you. AndI think a lot of these devices have had the hurdle ofmaking sure the device is giving you good information.
Hill:And not exploding.
Moser:Andnot exploding. But, I feel like they'velost their novelty. I feel like the people who want them have them. And yeah,this certainly doesn't help them at all. ButI don't even know that it really matters at this point.
Muckerman:Your phone can do it, there'splenty of watches that can do it. IfUnder Armourhas their druthers, their clothes are going to do it.
Moser:They haveshoes that are doing it. Now,you can wear shoes that will tell youall this stuff, and you don't have to wear this little band. Now, ifUnder Armour shoes start exploding,we have a big problem.
Muckerman:If you'reclose to the finish line, maybe that helps you out a little bit.
Moser:The neatthing about the wearables market is figuring that it doesn't actually have to be a watch or some wristdevice, it could be something a bit morediscreet and not so obvious.I think those are the implications that the wearables market -- that, to me, is the forward-looking nature of it. I think Fitbit hasn't reallypresented us with anything beyonddevices that may or may not explode on your wrist.
Hill:Do you think 2017 is the year that someone buys Fitbit?
Moser:I don't think so.
Moser:I don't know why you would buy it. Why would you buy it? That's the question.
Hill:I think you would buy it because the brand,assuming no more explosions take place and burn people's wrists --
Moser:Yeah,let's hope this is anisolated incident.
Hill:Absolutely. I think there is somevalue there, more than zero, is the way I would put it.
Muckerman:Butare they willing to sell for less than --
Moser:Theexample I go back to isLeapFrog.I think LeapFrog was a very good case study of something where, generally speaking, you likewhat they stand for. It wasbuilding devices for kids tohelp them start learning younger than ever before. But the problem was, theyimmediately became obsolete.
Muckerman:Youput an app on an iPad for that, yeah.
Moser:Exactly. So,it was less about the device and more about the information the device wasgiving you, and there are other ways to get that information out there, and LeapFrog's technology was really rendered obsolete in short order. And then, as anacquirer,you have to look at that and say, "Why do I want this? Is thissomething that's going to require more money to fix or turn around than is worth it?" BecauseI'm certain that businesses likeApple, forexample, are going to have better ways to get that information out of consumers, and parseall of that data and actually make something of it. So,I don't know, I guessI'm not clear as to why someone would want to acquire it.
Hill:Remains to be seen.
Chris Hill owns shares of Under Armour (C Shares). Jason Moser owns shares of Apple, Under Armour (A Shares), and Under Armour (C Shares). Taylor Muckerman owns shares of Under Armour (C Shares). The Motley Fool owns shares of and recommends Apple, Fitbit, Under Armour (A Shares), and Under Armour (C Shares). The Motley Fool has a disclosure policy.