Fitbit Hates Apple, Again
Shares of Apple (NASDAQ: AAPL) declined slightly on Wednesday after it unveiled its new iPhones and smartwatches, but it certainly wasn't the biggest loser from its own media event. Shares of Fitbit (NYSE: FIT) were coasting along earlier in the trading day, when they took a swift 7% hit after Apple raised the bar on health monitoring with its new Apple Watch Series 4 line.
The new smartwatches are the first to include heart rate sensors, beating Fitbit to the punch with a wrist hugger offering electrocardiogram readings approved by the Food and Drug Administration. Fitbit's been pushing the health tracking functionality of its devices for years, but now Apple can argue that its smartwatch -- already the world's top dog -- is even better.
It's about time
Fitbit's in a bind. It has posted year-over-year revenue declines in seven consecutive quarters, including a 15% slide last time out. Fitbit sold 20% fewer devices than it did a year earlier. Average selling prices are rising as a result of strong growth in Fitbit's nascent smartwatch line relative to its legacy activity trackers, and that's a problem with Apple once again raising the bar.
The silver lining in Fitbit's latest quarter was the surge in smartwatch sales, including its Versa model flying off the shelves to create a sellout situation. Fitbit will continue to have a pricing advantage over Apple and its premium positioning in this space, but that gap becomes hollow if it doesn't have the financial resources to catch up to the class act of Cupertino.
Fitbit used to be the industry leader in wearable devices, but now it's been passed up by Apple and, more recently, by China's Xiaomi (NASDAQOTH: XIACY). It has gone from gold to bronze in less than a year. This wouldn't be a fatal development if it was growing, but unlike Apple and Xiaomi, we're seeing that the trend isn't Fitbit's friend.
Adding insult to injury, Morgan Stanley analyst Yuuji Anderson issued a dreary Fitbit update on Thursday. He argues that Wednesday's sell-off in the stock was well deserved, reflecting concerns about the ability of Fitbit to catch up to the Apple Watch with its built-in electrocardiogram scanner. He sees cannibalization challenges within Fitbit's own product line. He's sticking with his bearish underweight rating and a $4 price target that suggests another 28% of downside even after Wednesday's drop.
Apple made a lot of iOS fans happy with the new devices it showed off this week, which offered enhanced features and compelling price points. Fitbit investors are naturally seeing the Apple Watch-specific revelations in a different light.
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Rick Munarriz owns shares of Apple and Fitbit. The Motley Fool owns shares of and recommends Apple and Fitbit. The Motley Fool has the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool has a disclosure policy.