Fitbit shares drop following slow start for Charge 2
Sales of Fitbit's Charge 2 have been "disappointing", prompting Pacific Crest to take an unusual bearish stance, as analyst Brad Erickson downgraded the wearables company to "underweight". Shares in Fitbit dropped by 10% in an afternoon, while the company's stock has lost 49% of value across the year. Erickson said Charge 2 needed to be a "blockbuster" for Fitbit, in a note to clients, but also warned of the disposability of Fitbit devices, saying "utility of the new devices is not viewed as critical".

Shares of Fitbit Inc. tumbled Thursday, after Pacific Crest took a rare bearish stance on the maker of fitness-tracking wristbands, citing signs of disappointing demand for the flagship holiday product and worries about user engagement.

Analyst Brad Erickson downgraded Fitbit to underweight, about seven months after downgrading it to sector weight. Through Wednesday, only two of 187 technology companies covered by Pacific Crest were rated underweight.

The stock US:FIT dropped 10% in active afternoon trade, putting it on track for the biggest one-day drop in nearly five months. Volume was more than 2 1/2-times the full-day average, with an hour still left in the trading session.

Erickson said that his conversations with a number of large retail chains indicated that while Fitbit’s new “Charge 2” product is well stocked, sales appear to have had a “disappointing start,” as they are lagging the sales pace of the “Blaze” and “Alta” products seen earlier this year.

“It isn’t 100% clear when ‘Flex’ may be coming; however, we think ‘Charge 2’ was intended to be, and frankly needs to be, the blockbuster product for the company this holiday,” Erickson wrote in a note to clients.

Another big concern is what Erickson called a “core utility issue” with Fitbit products that could weigh on demand for future products.

“Since we downgraded to sector weight in February, we have contended that, based on conversations with the distribution channel and Fitbit owners, a striking portion of people seem to simply stop wearing the devices within a few months of getting one,” Erickson wrote. “To us, this suggests that the utility of the new devices is not viewed as critical by a material portion of users.”

He said that is a “significant problem” for a company shooting to maintain unit volume growth in the double-digit percentage range.