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Fitbit: Working On A Subscription Stream Catalyst

Apr. 03, 2018 4:31 PM ETFitbit, Inc. (FIT)21 Comments


  • Fitbit hits new lows as Morgan Stanley lowers the price target to only $4.
  • The fitness tracking company has a problem with lumpy revenues.
  • A focus on subscription-based revenues will solve the revenue issue in the future.

As my recent research on Fitbit (NYSE:FIT) regularly highlights, the fitness tracking device company has an issue with recurring revenues while having a loyal user base. Fitbit is too dependent on repeat purchases of a product that doesn't need regular replacements and a big reason why Morgan Stanley (MS) downgraded the stock with a price target of $4. Now though isn't the time to abandon the thesis.

Lumpy Revenues

The stock trades at all-time lows as the market has become disenfranchised with the lack of a predicable revenue stream. The company though is working on a solution to that problem that might add huge value to Fitbit.

Over the last three years, revenues have consistently bounced around though trending down from the quarterly highs in Q4'15.

ChartFIT data by YCharts

Combined with weak revenues, the stock has been hit due to the company missing forecasts. The double whammy of declining revenues and missed estimates is the recipe for a very weak stock.

Source: Seeking Alpha - earnings tab

Premium App Focus

The company acquired the Fitstar app back in 2014 and recently upgraded the app and rebranded the coaching service to Fitbit Coach. Along with the recent purchase of Twine Health, Fitbit continues to move into premium services and recurring revenue streams.

Source: Fitbit press release

Fitbit Coach provides personal trainers for users. The app provides tailored adaptive workouts and recommendations based on the usage tracked by Fitbit tracking devices. The signs exist that consumers want coaching and the company has moved further into fitness apps with FitStar Yoga.

According to a study a few years back, app users were more active than non-users. The conclusion of the study was as follows:

Exercise app users are more likely to exercise during their leisure time, compared to those who do not use

This article was written by

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Stone Fox Capital Advisors, LLC is a registered investment advisor founded in 2010. Mark Holder graduated from the University of Tulsa with a double major in accounting & finance. Mark has his Series 65 and is also a CPA.

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Analyst’s Disclosure: I am/we are long UA. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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