Fitbit Inc FIT is overseeing a multiyear effort to shift its business toward a recurring revenue model, which implies a bullish stance on the stock is unwarranted, according to D.A. Davidson.
The Analyst
D.A. Davidson's Tom Forte initiated coverage of Fitbit's stock with a Neutral rating and 12-18 month price target of $5.50.
The Thesis
Fitbit would like to better position itself for opportunities in the health care space and generate recurring revenue from users, Forte said in the initiation note. (See the analyst's track record here.)
Fitbit's "ample" cash on hand of $679 million, or $2.86 per share, gives it the ability to target the "enormous" U.S. health care segment — an $800 billion market, the analyst said.
The maker of activity trackers is backed by a 25-million-strong active user base and its own Fitbit feed network, which includes 20 million users, Forte said.
The company's social media presence is encouraging given the more than 2 million "likes" on Facebook and top ranking in the fitness section in both the iOS and Android app stores as of 2017, according to D.A. Davidson.
Fitbit should see a "modest" sales decline over the coming three years and "modest" margin improvement, Forte said. Yet the company's potential to improve its business is "tremendous," and should a transformation be successful in the coming years, the analyst said he looks forward to taking a bullish stance on the equity.
Price Action
Fitbit shares were sliding more than 2 percent to $5.44 at the time of publication midday Tuesday.
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Photo courtesy of Fitbit.
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