Fitbit (FIT) Seeing Pressure from All Sides - Analyst

Fitbit (NYSE: FIT) is benefiting today (+3.1%; $29.65) from an upgrade to Buy at BofA/Merrill Lynch but perhaps a separate research note should be what investors pay attention to.

In a note to clients today, Detwiler Fenton said Fitbit should be scared of competition from Fossil Group (NASDAQ: FOSL), which recently announced an agreement to acquire Misfit, in addition to the impact Apple Watch is already having.

The analysts noted the Watch business is in need of an overhaul with the Apple Watch already impacting demand for more traditional watch vendors.

Detwiler sees a bifurcation forming between the Fitness (Jocks) side of the market and Smartwatches (Nerds). On the fitness side, while there will always be a place for step counting gadgets most go the way of most exercise equipment (ie not used after a couple months). This is seen as a possible problem for incumbents such as Fitbit. "The company will have to evolve beyond gadgetry to fight off pressure building from below as low-priced entrants nip at its heels (incl. FOSL / Misfit) and above as AAPL, Samsung, and others develop increasingly useful extensions to the Smartphone and increase Smartwatch utility," the analyst commented.

The firm's checks in the Watch market in general have uncovered some panic. The Apple Watch is impacting the higher end and they see this accelerate dramatically into the Holidays. Also, there is already another version in the works that will redesigned after its consumer field test this and we've yet to see the benefits of a innovation cycle from 3rd-party App developers, the analyst notes.

Fossil's acquisition of Misfit is a good example of the price pressure on Fitbit.

"Apple is capping the upper end of the market, as FIT bands aren't too Smart," the analysts commented. "The difference now is that the pressure from below will be coming from a real player in the broader Watch market that already has significant placement through various major retail channels and is aggressively looking to hold on as the market evolves."

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