Fitbit Stock Has a Lot Riding on These 2 New Products

Image source: Fitbit.

Early leaks of what may beFitbit's(NYSE: FIT)next two products weighed on the stock last week. Fitbit stock slumped after tech blog TechnoBuffalo posted what the market is interpreting as uninspiring snapshots of Charge 2 and Flex 2.

The news may not seem so bad after initially eyeing the allegedly leaked snapshots. The Fitbit Charge 2 will offer a larger display and include the proprietary PurePulse heart-rate tracking technology. TechnoBuffalo also points out that Fitbit Charge 2 will offer notifications from Bluetooth-enabled smartphones, giving it a pseudo smartwatch quality. Fitbit broke into the smartwatch market earlier this year with the introduction of Fitbit Blaze. It went on to sell more than a million units in its first quarter of availability.

The likely cheaper Fitbit Flex 2 is an upgrade to the entry-level tracker that offers all-day sleep and activity tracking in a display-less band. One big upgrade here is that the marketing material in the unconfirmed photo bills it as swim-proof instead of merely water-resistant like the original model. This means that it will be perfectly acceptable on the beach or when swimming laps around the pool. This is something that you can do with many fitness trackers and smartwatches.

These are logical and evolutionary steps for both product lines, and the market wasn't exactly wowed by the unauthorized photos. However, the real dagger came because two different screen shots of the Fitbit Charge 2 had a date of Nov. 27 on them. The assumption here is that this is when the new wearable fitness device will hit the market. Coming out three days after Thanksgiving and two days after Black Friday will find Fitbit reeling if it wants to make a dent during the potent holiday shopping season.

Losing a step

The competitive environment and fickle nature of the marketplace is placing more emphasis on new products. More than half of Fitbit's revenue through the first half of 2016 has come from the Blaze smartwatch and Alta fitness tracker, two devices that rolled out earlier this year.

This finds Wall Street bulls banking a lot on the success of Fitbit's debutantes. Piper Jaffray analyst Tavis McCourt -- who is bullish on the stock with a $23 price target -- was cautious about the way that sales were trending through June in a late June note. However, he was hopeful that updates to the Charge and Flex lines would breathe new life into the second half of the year. If there are delays to either rollout, it could cool some of the bullish analysts.

The stock took a beating earlier this year, down 59% through the first six months of the year. It was rallying recently, up a sharp 25% since bottoming out in June. The success of Charge 2 and Flex 2 will go a long way in dictating which way the stock moves in the coming months.

Sprinting to the finish line

Revenue is still growing quickly, up a sharp 46% in its latest quarter. Things haven't been as kind on the way down the income statement. Net margins are contracting, and adjusted earnings are plunging as Fitbit deals with escalating marketing costs and the low margins associated with newer products.

We probably won't have to wait long to get an answer on the drama surrounding the yet-to-be released devices. We're now just two weeks away from the annual IFA convention in Berlin, where Fitbit is expected to discuss its product pipeline. Delays will naturally slam the stock, but news of timely releases, and the potential for unexpected products or features, could get the recent rally back on track.

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Rick Munarriz owns shares of Fitbit. The Motley Fool recommends Fitbit. 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.