Fitbit's New Product Should Lead To Strong Holiday Season

Fitbit Inc FIT reported its 2Q results slightly ahead of the consensus expectations, and Morgan Stanley’s Jerry Liu believes that the company is well positioned heading into the holiday season.

Liu maintains an Overweight rating on the company, with a price target of $31.

Well Positioned For The Holiday Season

“With low valuation and high short interest, we like FIT heading into the holiday season where wearables will be very popular gifts, and Fitbit remains the category leader and is about to launch new products and accessories,” the analyst said.

2Q Results

Blaze and Alta continued their robust performance in 2Q, growing 50 percent quarter-on-quarter.

Liu stated that the company’s new products appear to be on track, while some retailers are now giving Fitbit more shelf space for the upcoming holiday season.

Related Link: Fitbit Posts Another Top, Bottom Line Beat

CEO James Park noted “a full product pipeline for the next couple of years including new features and functionality and interactive software,” the analyst said, while adding that the hiring of the new VP of Digital Health implies additional opportunities to partner with insurance companies and expanse the enterprise wellness business.

Unexpected Revenue Driver

However, Liu also pointed out that the large, one-time warranty accrual of $50 million accounted for 8.5 percent of the revenue for 2Q, significantly higher than the average of 3 percent over the past three years.

“While there were some unexpected expenses in 2Q, we do not think that should detract from Fitbit's strong market positioning and upcoming catalysts,” the analyst added.

Fitbit was seen up 7.90 percent in Wednesday's pre-market session, trading at $14.20.

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