New Fitbit Checks Show Analysts Are Underrating Blaze Potential

Bank of America Merrill Lynch said recent retail checks show analysts are underrating the potential of Fitbit Inc FIT's Blaze to lift ASP, margins and unit sales.

"We checked retailers websites including Best Buy, Target, and Kohl's and found retailers experiencing delayed shipping or individual store outages likely indicating Blaze has sold well since launch. In addition, many stores restocked which may indicate that FIT had a retailer reorder of Blaze during 2Q which was not included in guidance," analyst Nat Schindler said in a note to clients.

The analyst also checked retailer reviews at several sites including Amazon.com, Inc. AMZN, Best Buy Co Inc BBY, and Cnet. Overall reviews averaged 3.9 out of 5 for the Fitbit Blaze compared to the Fitbit Charge HR at 4.2 and Surge at 3.6.

On Amazon, the Fitbit Blaze has become the number one selling smartwatch (ahead of the Apple Watch) and is number one in the running watch category (the Surge is second).

"We believe that this points to a positive reception by consumers and indicates the product is selling and will likely to continue to sell well in FY16 as few competing products exist with similar features at the $199 price point," the analyst said.

Schindler said Blaze has more sales potential then the Street is giving it credit for.

"We tested the Blaze for the last two weeks and found it to be a solid entry that blurs the line between fitness tracks and smartwatches," he noted.

The Blaze has all the popular fitness features like step count, stair count, active real time heart monitoring, and calorie counting while including the most popular smartwatch features like notifications and call notices into one package. While the Apple Watch has more functionality, the Blaze has more fitness focused features and better battery life (5+ days in our tests), the analyst highlighted.

In addition, Schindler said Fitbit Alta success will be more important than Blaze. The Charge successor, Alta, is shipping according to the Fitbit site though not yet available at all retailers. The Charge and Charge HR were Fitbit's most popular products in fiscal 2016 and the more fashion focused Alta will be a test of Fitbit's ability to drive upgrades and maintain market share.

At $129, the Alta is priced similar to the Charge, but has notification and auto workout enhancements. The thinner, trendy look is expected to be popular with consumers.

The analyst also noted that although gross margins are down in the first quarter on the new product launches, the Alta and Blaze products have potential to be higher margin products over their lifetime compared to the previous generation.
Schindler maintained his Buy rating on Fitbit and $29 price target, saying that the market is discounting Fitbit's potential to improve gross margins, growth revenue, and bottom line EPS in FY16.

Shares of Fitbit were down 4.16 percent at $13.83. FIT shares have dropped 53 percent year-to-date.