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FitBit outage and GasPT certification -3

05:54 25-Apr-18


CUI Global has announced that its GasPT devices have received broader certification in the U.K. allowing "use at all Directed measurement points where the gas composition is known to be within the approval range of the instrument."  This in turn will allow the company to begin more vigorous marketing efforts, including hosting an Approval Workshop for potential customers on May 10th.  Although, this is a long term positive, I see the situation as being similar to the data center products, rather than having immediate impact. 

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More concerning is an outage in Fitbit's infrastructure that affected Ionic and Versa operation yesterday.  The issues are now resolved, and may be related to problems with Amazon's AWS services.  This will eventually be forgotten, but it's still a black eye that comes at a bad time.

The rest of this note will use the calm ahead of the earnings storm to update on the developments, both at Fitbit and in its shares, as I will not be able to have the hands on Versa review out before earnings.  The executive summary is that FIT shares are still primarily the province of short-term traders, which is not something that is of much interest to me. 

Fundamentally, I've pointed out that FIT could be considered interesting below $5.  Some channel checks are reporting that retailers are sold out, but that is likely because Fitbit is likely managing expenses and inventory levels.  I was able to order and have the evaluation model directly from Fitbit and have it shipped within a day.  I think what we're seeing here is management favoring direct online sales, which will help mitigate the margin problems we've seen since the company was forced to compete on price.  This is still not a great situation to be in, but it strikes me as good, conservative management given the stage of product development. 

That is improving some on the software side, with the addition of an emulator and better messaging capabilities scheduled to be available in the next month or two.  In conjunction with my opinion on how good a target market women are for this sort of device, I think there's more upside potential than downside risk, even post-earnings, but for people with profits and taxes to pay, it's hard to see how FIT is a better long-term hold than other dividend paying names that I've mentioned.

However, for those who take a different approach, I note that many stocks tend to rise a little before earnings, and we've been seeing that in FIT.  The bulk of open calls centers around the $6 strike, whereas the open puts shade from heavier positions at $4 up to lighter but still significant ones at $6.  That range is likely to be significant for the short term, and I think it would probably take a BIG positive surprise (which is still somewhat unlikely) to get above $6, with anything else leaving shares within it.  If there was such a surprise and movement, though, the almost 20% shorted float could exaggerate a further move, at least for the short term.

Again, I've had best results by focusing on the long-term, and not worrying about missing out.  I will be watching the software development more closely, though, and reporting first-hand impressions after earnings.