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Cramer: Don't dismiss Fitbit as the next GoPro

Cramer: Don't dismiss Fitbit as the next GoPro

Ever since Fitbit, the wearable fitness device maker, went public in June, it has constantly been compared to GoPro, the wearable camera maker. And while Jim Cramer totally understands the comparison, he says to not dismiss Fitbit as just another GoPro.

However, the similarities between the two companies are undeniable. Both make sleek hardware technology products in rapidly growing market, look to differentiate themselves with their software and have young, dynamic CEOs.

Both stocks rallied quickly after their IPOs, only to become controversial shortly afterward.

The one other thing in common for Fitbit and GoPro is that both requested and received approval to release IPO lockup restrictions and sell some of the restricted shares before the usual 180-day lockup expiration. This led to steep declines in share price.

Ever since GoPro's lock-up expiration in December 2014, the stock has fallen 66 percent.

With Fitbit down 45 percent from its highs already and its full lockup expiration is around the corner on Dec. 15 —will Fitbit's stock fall off a cliff, too? Or is there something that makes Fitbit better than GoPro and will prompt the stock to rebound?

Having insiders dump that much stock on the open market was very bad news for GoPro's shareholders
Jim Cramer
Go Pro and Fit Bit
David Becker | Justin Sullivan | Getty Images

In Cramer's perspective, the reasons why the two companies had early lockup expirations were very different. Therefore, the stocks should be treated differently.

Typically, when a company goes public, the insiders will agree with the bankers underwriting the deal that they will not sell their shares for a set period. That period is usually six months following the IPO.

In the case of GoPro, CEO Nick Woodman and his wife, Jill, announced they were establishing a $500 million charitable foundation to be funded via the transfer of some of their position in GoPro shares. So, the lead underwriter agreed to release the Woodmans' new charitable foundation from its lockup restriction for about 5.8 million shares.

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"Giving half a billion dollars to charity is a wonderful thing to do, no question, but this show is about helping individual investors try to make money. And having insiders dump that much stock on the open market was very bad news for GoPro's shareholders," the "Mad Money" host said.

Meanwhile, Fitbit's early lockup release was very different. Two and a half weeks ago, when Fitbit reported, it announced that its lead underwriter had granted Fitbit an early lockup release so the company could sell 21 million shares via a secondary offering.

Ultimately, the figure was reduced to 17 million, with 14 million from existing shareholders, and 3 million from new stock that Fitbit was selling to raise capital.

So, in this case, Fitbit itself sold stock to raise money to invest in its business. A major rationale for the secondary offering was to create an orderly process for the company's venture capital shareholders to sell stock. CEO James Park also said insiders and sellers taking part in the secondary would have to agree to an additional 90-day lockup on selling the rest of their shares.

Fitbit's stock was obliterated, including a hideous 12 percent decline last Friday when the secondary offering priced at $29.

"Will it continue to get hammered like GoPro did? I think the short answer is no, because despite the similarities, Fitbit has a lot more going for it than GoPro did at this time last year," Cramer said.

Cramer thinks it would be a mistake to dismiss Fitbit as the next GoPro. Fitbit's numbers are much stronger, with better prospects and a cheaper stock. That means when the full lockup on insider selling ends in one month, Cramer wants investors ready to buy Fitbit into any additional weakness.

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