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Investors Aren't Buying Fitbit's Smartwatch Pitch By Donna Fuscaldo | January 31, 2017 — 12:24 PM EST
Faced with lackluster demand for its wearable fitness devices and with prospects of successfully morphing into a digital healthcare company dimming, Fitbit Inc. (FIT) is hanging its hat on the smartwatch market, betting it can transform into smartwatch maker that will rival Apple Inc. (AAPL).
That may not have been evident to investors on Monday who sold shares in droves after Fitbit preannounced for the fourth quarter, warning that results will come in below already reduced forecasts and announced it was laying off 6% of its workforce. In the press release announcing the bad news, Chief Executive James Park signaled optimism about its future as a smartwatch maker. “We believe the evolving wearables market continues to present growth opportunities for us that we will capitalize on by investing in our core product offerings, while expanding into the smartwatch category to diversify revenue and capture share of the over $10 billion global smartwatch market,” said Park in a statement.
“We believe we are uniquely positioned to succeed in delivering what consumers are looking for in a smartwatch: stylish, well-designed devices that combine the right general purpose functionality with a focus on health and fitness. With the recent acquisition of assets from Pebble, Vector Watch and Coin, we are taking action to position the company for long-term success.” (See also: Fitbit Acquires Smartwatch Upstart Vector.)
Fitbit Makes Moves
In recent weeks, Fitbit has been making moves to expand its smartwatch business by acquiring smartwatch pioneer Pebble in December and then Vector Watch in January. According to Vector, Fitbit will be integrating the acquisition's team and its software platform—similar to what it did after buying Pebble. They intend to "start building other new and amazing products, features and experiences, incorporating [Vector's] unique technology and knowhow with Fitbit's experience and global." The purchase of Vector is timely given Fitbit's recently announced plans to open a full-fledged app store for its devices later this year.
Still, betting on the smartwatch market may prove to be a bad decision. Demand for smartwatches appears to be worse than for fitness devices judging by industry analysts. Take IDC: It said smartwatches are expected to continue to lag at least in the near term. Meanwhile, Kantar Worldpanel ComTech said there was only a modest uptick in sales from September to December with smartwatches performing worse than fitness trackers. Kantar found that as of December, 15.6% of U.S. consumers owned a smartwatch or fitness band, up slightly from 14.8% in September. Smartwatch adoption has been particularly low at 4.2%, Kantar found, while in Europe smartwatch penetration is at 3.8%. Investors aren’t sharing the same optimism that Park’s may have for the company's future. Shares were recently down 2.2% or $0.14 to $5.93 a share. The stock is down more than 25% since the start of 2017.