Fitbit Inc (NYSE:INC) and Oracle Corporation (NYSE:ORCL) make headway towards new markets. Both companies implement new plans; Oracle shifts its weight towards the cloud-based sector, and Fitbit’s Chief Financial Officer announces the company’s positive projections and intentions. In light of these events, Merrill Lynch analysts weigh in.
This week’s Bank of America, Merrill Lynch Consumer & Retail Conference was a display of confidence for Fitbit Inc. The Chief Financial Officer of the company, Bill Zerella, was invited to speak about his projections for Fitbit on many different topics; market opportunity with respect to Fitbit on Smartphones, global expansion, two new key products (Alta and Blaze), and the company’s competitions with Apple Watch. Analyst Nat Schindler of Merrill Lynch adds his views.
The analyst comments on the company’s market opportunity, stating, “Fitbit sees its market opportunity as all smartphones with Fitbit able to attach across device classes” and continues by comparing its products to competitor GoPro. He states, “GoPro’s addressable market is much smaller and ability to drive upgrades more limited.” As of now, Fitbit holds 85% of the fitness tracker market, but if included in the wearable/smartphone market, the company had a 30% share in the last 4Q.
Schindler comments on the company’s margin growth and rapid expansion in the global arena, stating, “Health and wellness corporate sales are higher margin than retail sales and can support higher overall margins as it grows into a larger piece of the business.” In addition, the company announced over 1000 corporate partners and plans to tackle global obesity rates as a market opportunity through partnerships with international governments.
Fitbit’s new products; Alta and Blaze, were also under the spotlight as expectations are high for both. Schindler adds “The Blaze, a new SKU and price point, could drive incremental sales units in FY16 if successful,” which adds all the more positive sentiments for the company’s projected expansion. The Apple Watch, which appears to be a direct competitor, is actually viewed by the analyst as inferior specifically in the fitness and health aspect, and not so much a direct threat. He explains, “The Apple Watch, though potentially having more capabilities as a general platform, lacks the focus on health and fitness and has a smaller TAM.” Apple Watch is also limited to Apple users, which constitute 20% of the market. Fitbit, on the other hand, “is device agnostic and works on over 200 iOS, Android, and Windows devices widening the international opportunity.”
The analyst maintains a Buy rating and price target of $29. He explains, “We remain positive given: 1) initial new product traction seems positive; 2) track record of beat and raises earnings; and 3) potential to capture the majority share of the growing fitness tracker market. We see a potential for multiple expansion as new products prove themselves through the year.”
Nat Schindler has a 47% success rate and an average loss of (4.2%) per rating. According to TipRanks, among Schindler, in the past three months, 7 analysts gave FIT a Buy rating, and 7 others remained Neutral. The average 12-month price target for the company is $23.10, marking a 61.31% upside.
As Oracle Corporation invests effort in cloud-based services, an analysis of the company’s February quarter signals that the move seems to play out positively. Analyst Kash Rangan of Merrill Lynch weighs in, maintaining a Buy rating with a price target of $48. He bases his assessment upon three main metrics that, in his opinion, properly reflect the fruits of Oracle’s efforts. These metrics revolve around the company’s licensing revenue, SaaS/PaaS sales, and cloud bookings. Here’s a brief breakdown:
Despite over 50% of revenues coming from overseas, the strong dollar did not seem to inflict much harm to Oracle’s quarterly performance. The company’s licensing is as high as $1.68bn, in line with the analyst’s expectation. The analyst also notes 150% PaaS revenue growth “indicating that Oracle is addressing with effectiveness the potential disruption in the cloud database market with the onset of [competitors] AWS and MSFT.” He continues, “Despite this, core DB licenses, although down y/y due to substitution, nonetheless were stronger than middleware and apps license.”
The analyst points to “Cloud, notably SaaS/PaaS gross margins of 51% versus 40% and 43% in Q1 and Q2,” which is another indicator of Oracle’s success. Rangan states, “Feb Q delivered with SaaS/ PaaS CC revs up 61% y/y CC versus 38% y/y CC in Nov Q.” and proceeds to further explain why he retains an optimistic view on Oracle. He states, “Although billings growth declined to 32% from 68% in Nov Q quarter, we are not concerned as it is impacted by unwinding of metered PaaS.”.
Lastly, Rangan believes the company’s linear increase in cloud bookings should establish a huge revenue base for the company for the next two years. The analyst reiterates Oracle’s cloud bookings of $1.5bn for FY16 and explains, “Based on the linearity of cloud bookings last year we estimate ORCL could finish FY16 with $1.6bn in bookings, which suggests that renewal rates are holding, our FY17 cloud revs estimate of $3.34bn has upside.”
Analyst Kash Rangan has a 63% success rate, with an average return of 6.6%.
According to TipRanks, of the 23 analysts who have rated ORCL in the past 3 months, 12 gave a Buy rating, 9 remain on the sidelines, and 2 gave a Sell rating. Overall, the stock’s average 12-month price target is $44.47, marking a 10.57% upside.