Activity band RIP? Fitbit fit to be tied

Fitbit (FITB), the master of the activity tracker, is having trouble making its step count and investors are cooling off on the whole idea.

Shares of the consumer electronics company tripped 30% Thursday, dropping $3.81 to $9.01. It's just the latest blow for the company trying to maintain leadership in a market for overall wearable technology that's in rapid decline and stuffed full of competition.

Shares of Fitbit are taking their latest leg down after the company late Wednesday reported third-quarter revenue of $503.8 million, which missed expectations by 1%, says S&P Global Market Intelligence. The worst part was the company also lowered its guidance for the fourth quarter, which is the company's most crucial of the year (think holiday gifts and New Year's resolutions). Analysts on average have slashed their revenue forecast on the company by nearly a quarter to $743.04, says S&P Global.

The stock's implosion reflects the growing skepticism that activity bands and smartwatches will be a growing category going forward, says Ross Sandler, analyst at Deutsche Bank in a note to clients. "Shares assume FIT is a hardware fad that will see negative growth into perpetuity," he says.

Fitbit is just the latest hardware gadget maker that's seen its shares and outlook get crushed as consumers' drawers are already stuffed with electronic devices, especially smartwatches. Sales of wearable devices, which include smartwatches and activity trackers, in the third quarter fell to half that of year-ago levels, says International Data Corporation.

Headphones and activity trackers have seen additional high-profile exits and retrenchments. Microsoft (MSFT), which is working on beyond-the-curve technologies like artificial intelligence and 3-D modeling, has stated it has no immediate plans to release a update to its Band sports tracker. Skullcandy, a maker of trendy headphones that went public in 2011, was bought in June 2016 by Incipio, a maker of smartphones cases for $177 million. Sales of Apple's smartwatch, also, have barely moved the needle compared with massive sales of its smartphone.

That's not to say the space is entirely dead. Garmin (GRMN) has been the notable bright spot in the industry as it continues to use it engineering expertise to keep a step ahead even as its business for navigation devices for cars is under assault by smartphones. The company has focused on navigation devices for marine uses and has continued to innovate with wearables with full-functioned devices with unique smartphone features or designed for serious athletes. Share of Garmin are up 28% this year.

Fitbit's revenue is growing, too, just not as rapidly as investors thought it would before. Fitbit's revenue this year is expected to hit $2.3 billion, up 26% from 2015 levels, S&P Global says. Next year, analysts think Fitbit's revenue will jump 14% to $2.7 billion and profit to rise 9% to $218 million. Investors might think fitness trackers are a fad and growth will disappear, but that "isn’t happening now and we don’t see playing out in 2017," Sandler says.

BAD YEAR FOR MANY HARDWARE MAKERS

Select shares of many tech hardware makers are struggling as industry pressures mount 

Company, Symbol, YTD % Ch. * 

Crossroads Systems, CRDS, -82%

Fitbit, FIT, -69.6%

ZAGG, ZAGG, -42.9%

GoPro, GPRO, -32%

Turtle Beach, HEAR, -31.8%

Source: S&P Global Market Intelligence, USA TODAY

* Based on stocks in the S&P 1500 and S&P Completion indexes in the technology hardware, storage, electronic equipment and consumer electronics industries

It's been brutal for gadget makers trying to grab a piece of the shrinking market. Shares of Fitbit are down 70% this year, making it the second worst stock in either the Standard & Poor's 1500 index or the S&P Completion Index classified as a technology hardware, electronic equipment or consumer electronics company. But it's not just activity trackers that are fading out. Other widely followed gadget makers are also down big time such as video camera maker GoPro (GPRO), down 32% this year and Turtle Beach (HEAR), which is a maker of high-end headphones, which is off 32%.


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