Fitbit, Despite New NBA Team Deal, Lower On Evidence Inventory Discounting Continues

Fitbit IncFITpartnership with the NBA's Minnesota Timberwolves sounds like a positive development that could help the struggling stock that has already lost 30 percent since the start of the year.

The Deal

As part of an agreement with the Timberwolves, Fitbit would gain exposure in the team's stadium and will be featured on a jersey patch. The two organizations will also collaborate on using Fitbit's wearable technology to improve the health and fitness of its players. Yet shares of Fitbit were trading lower by more than 2 percent following the announcement.

Analyst's Commentary

Coinciding with Fitbit's announcement, Longbow Research's Joe Wittine maintains a Neutral rating on Fitbit's stock with no assigned price target. Of particular note, Fitbit continued its discounting activities, including a $50 discount on the Blaze watch.

Low Blaze inventory was observed at many physical retailers and even online where Amazon.com, Inc. AMZN was quoting one to two fulfillment delays last week, the analyst noted. On one hand, Fitbit appears to be discounting its products to clear inventory at a "surprising degree" ahead of the launch of a general smartwatch which sets the stage for a stronger sell-in in the back half of 2017.

On the other hand, there is still a lack of visibility into Fitbit's entrance within the non-fitness tracking smartwatch category, Wittine continued. As such, it is premature to turn bullish on the stock at this time (check Wittine's track record).

Nevertheless, a bullish case for the stock can be made. Under such a scenario, Fitbit introduces a new smartwatch this summer and Fitbit faces easy comps versus 2016's results. Yet at the same time the bearish case also exists in which Fitbit's reported hardware issues are real and a launch at any point in 2017 is unrealistic.

"This is obviously difficult to handicap, though based on our interactions with the company, we would be surprised if a major delay announcement was ahead," the analyst concluded.

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