Have Consumers Lost Interest In Fitbit-Style Activity Trackers?

The 30 percent decline in Fitbit Inc FIT's stock following its third-quarter earnings report is raising the question: Are consumers bored with activity trackers?

David Larsen of Leerink believes this may be the case. In a research report on Thursday, the analyst maintained a Market Perform rating on Fitbit's stock with a price target slashed to $9 from a previous $16.

Larsen joins several other analysts who either downgraded Fitbit's stock or lowering their price estimate.

Larsen noted that Fitbit's third-quarter earnings print was mostly in line, but management guided its outlook for the fourth quarter and beyond lower due to softness in overall demand from its portfolio.

Fitbit's full-year fiscal 2016 revenue guidance was cut by nine percent while its non-GAAP earnings per share was slashed by 52 percent. In addition, the company guided its fourth-quarter revenue to a range of $725 million to $750 million, which was 25 percent below the consensus estimate.

Reuters even described Fitbit's fourth-quarter guidance as being "dismal," especially during a holiday quarter, a view the analyst mostly agrees with.

The analyst believes that consumers in the United States have merely "lost some interest in activity trackers."

Meanwhile, international sales are feeling the pressure of high prices. For example, Larsen noted that sales in the Asia-Pacific region fell 45 percent year-over-year as the devices are "relatively expensive," and the same can be said for the Europe, Middle East and Africa region where sales decelerated to 64 percent growth from 150 percent last quarter.

Bottom line, part of Fitbit's woes in the third quarter stemmed from warranty accruals from legacy devices and manufacturing issues with the with the new Flex 2. While these problems are expected to be resolved by the end of the fourth quarter, gross margins won't see any improvement due to the company's lower sales projection and additional new devices entering the market.