Morgan Stanley Stays Bearish On Fitbit After Apple Watch Unveil, Says Revenue Is The Real Concern

Apple Inc. AAPL's launch of the Series 4 Apple Watch, with features that include a built-in heart monitor, sent shares of rival smartwatch manufacturer Fitbit Inc FIT down by about 7 percent Wednesday.

The Analyst

Morgan Stanley analyst Yuuji Anderson maintained an Underweight rating on Fibit with a $4 price target.

The Thesis

Fitbit's  stock reaction to Apple's launch largely reflected concerns over the pace of software and sensor improvements in the Fitbit ecosystem, Anderson said in a Thursday note. (See the analyst's track record here.) 

The Apple Watch 4 has sensors and an app to detect atrial fibrillation — one of many health and wellness use cases Fitbit is also pursuing, the analyst said. 

Fitbit's newest products Versa, at $200, and Charge 3, at $150, address lower price points, Anderson said. 

Morgan Stanley's below-consensus estimates for Fitbit show concerns that the "health and fitness functionalities between the Versa and Charge 3 are not sufficiently differentiated to avoid cannibalization."

Aggregate demand will not sufficiently offset declines in legacy products exiting 2018, Anderson said. 

Continued revenue declines with lower-priced products will drag Fitbit shares down toward Morgan Stanley's price target, the analyst said.

The Price Action

Fitbit shares have lost about 3.2 percent year-to-date.

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Photo courtesy of Fitbit.