BlueFin: Fitbit Will Likely Cut Unit Guidance, Watch Out

Strategy flaws and low barriers to entry trigger concerns over the prospect of Fitbit Inc FIT. BlueFin’s John Donovan said that the company’s strategy to expand offerings appears to be “ill-timed.”

Waters TO Get Muddier

So far, Fitbit (FIT) has been providing middle and lower-end products at $100-$129. The company’s expansion into the premium end of this market “places them in jeopardy of trying to compete against enemies it has little hope of beating,” analyst John Donovan commented.

Data suggests that more than 40 percent of users discontinue using the devices within 3 months, while more than 50 percent of all users abandon the devices within 2 years. This does not bode well for long-term growth, Donovan pointed out.

Low Barriers To Entry

Accelerometers and heart-rate monitors are commodities, and there are several Chinese manufacturers working to launch such products through 2016. “What FIT has done thus far is to expand its portfolio and frankly the fact that it offers 8 distinct devices in the sub $200 space is confusing to say the least,” the analyst wrote.

Performance In 2016

BlueFin’s unit estimate for 2016 has been reduced to just under 25M, which is more than 1 million below consensus expectations. BlueFin’s revenue estimate for the year is $125M lower than the consensus.

“The shipment levels of Alta and Blaze are impressive, but the real question is whether those shipments are actual sales or channel fill that will affect Q2 and beyond shipments as these devices are absorbed,” Donovan commented, while adding that there were already inflated inventory levels at retailers such as Target, Wal-Mart and Best Buy.