3 Reasons Why Morgan Stanley Is Bearish On Fitbit

Fitbit Inc FIT priced its June 2015 initial public offering at $20 per share and early investors were rewarded with the stock's move higher to $50 per share in August. Nearly three years later, however, the narrative has changed.

The Analyst

Morgan Stanley's Yuuji Anderson downgraded Fitbit's stock from Equal-Weight to Underweight with a price target lowered from $5 to $4.

The Thesis

Fitbit is active in releasing new product lines, which could bode well with consumers, but there are three reasons to justify a bearish stance on the stock, Anderson said in the note.

1. New products introduced in 2018 will "struggle to offset declining demand" for older products, which creates risk in management's ability to achieve its $1.5 billion revenue target in fiscal 2018.
2. Fitbit's pace of software and sensor developments has "not sufficiently catalyzed demand," Anderson wrote. If demand for new watches like Versa doesn't see a meaningful rebound, there could be even more downside to current estimates.
3. Fitbit's initiatives in subscription service revenues from apps (like Twine Health) is unlikely to be large enough to offset hardware sales declines for at least two years, according to Anderson.

Price Action

Shares of Fitbit were trading lower by more than 5 percent Monday at $4.82.

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