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Aug 24, 2016

S3 BLACKLIGHT: Fitbit Short Sellers Are Starting To Leave the Table

The U.S. International Trade Commission ruled that Fitbit Inc. (FIT US), the largest manufacturer of wearable activity trackers, had not “misappropriated any trade secret” from Jawbone Inc.. Although this notice is just a prelude to a final decision due in December, it gives round 1 of the overall larger trade secret litigation to Fitbit. Fitbit stock is up 2.5% on the news today after being up 3% yesterday.

Fitbit’s stock price is still down over 48% for the year mainly due to increased competition in the wearable technology sector from Apple (AAPL US), Samsung (005930 KS), Xiaomi (private company), LG (066570 KS) and Garmin (GRMN US). Fitbit had a virtual monopoly in the sector when it started in 2007 but its market share has gradually eroded and is now below 25%.

Even though Fitbit has beaten analyst’s expectations for five consecutive quarters shorts had not relinquished their positions. Short interest in Fitbit peaked at $863 million in December 2015 and has averaged $578 million since the firm went public in June 2015.

Fitbit short interest fell 44%, to $448 million, by mid-June but quickly increased by $230 million to $648 million by the end of July. We are seeing short sellers pulling back a bit in August with $45 million of short covering and total short interest dropping to $633 million. The S3 Crowding Indicator, a measure of the magnitude of real-time shorting activity relative to market cap and float, had six easing spikes in the last two weeks indicating that short momentum has reversed and we are entering a short easing period. The S3 Velocity Indicator, a measure of the real-time relative change in shorting activity, has been trending downward since the second week of August confirming that short selling momentum is reversing.

For more information on the above analysis, please contact:
Ihor Dusaniwsky, Head of Research, S3 Partners, LLC     Ihor.Dusaniwsky@S3Partners.net

The information herein (some of which has been obtained from third party sources without verification) is believed by S3 Partners, LLC ('S3 Partners') to be reliable and accurate. Neither S3 Partners nor any of its affiliates makes any representation as to the accuracy or completeness of the information herein or accepts liability arising from its use. Prior to making any decisions based on the information herein, you should determine, without reliance upon S3 Partners, the economic risks and merits, as well as the legal, tax, accounting and investment consequences, of such decision.

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