The upcoming Fitbit IPO date seems to be the talk of the water cooler. Is it because Fitbit is the real thing or is it because it’s been a quiet year so far on the IPO front? With an expected launch on the NYSE in the next couple of weeks, investors may be wondering if they should try and get in on Fitbit as soon as possible, or wait it out to see if the “Apple Watch” will be a threat to its share price.
Fitbit IPO Coming
Fitbit, the wearable monitoring device (think watch) that tracks your fitness activity (heart rate, steps, calories burned, quality of sleep, etc.) is hoping to sell over $358 million of shares at a range between $14.00 and $16.00 per share. This would value Fitbit at more than $3.0 billion. But investor euphoria could very well push the Fitbit IPO price well above these levels.
There is some justification for the growing interest in Fitbit, if you think fundamentals and industry trends are important. First off, Fitbit is selling lots of devices. According to a recent Securities and Exchange Commission (SEC) filing, Fitbit generated sales of $336 million in the first quarter of 2015; that’s a 210% increase over the $108.8 million recorded in the first quarter of 2014. (Source: sec.gov, IPO filing, www.sec.gov/Archives/edgar/data/1447599/000119312515176980/d875679ds1.htm, May 7, 2015.)
The company is also making a lot of money. It raked in $48.0 million in the first quarter of 2015, a 440% increase over the $8.9 million in earnings generated in the first quarter of 2014.
These numbers are building on the company’s short history of strong revenue and earnings growth. In 2011, Fitbit reported revenue of $14.5 million and a loss of $4.3 million. Fast forward to 2014 and Fitbit reported revenue of $745.4 million and earnings of $131.8 million.
The strong increase comes on the heels of improved sales. The number of devices sold grew from 200,000 in 2011 to 10.9 million in 2014. And the future continues to look bright for Fitbit. During the first quarter of 2015, the company sold 3.9 million devices, a 140% increase over the 1.6 million sold in the first three months of 2014.
Can Fitbit Fend Off Apple Watch and Xiaomi “Mi Band?”
Fitbit has great financials. But in a world of growing competition, does it have what it takes to stay on top? A case study, if you will:
The International Data Corporation announced recently that vendors shipped 11.4 million wearables during the first quarter of 2015, a solid 200% increase from the 3.8 million shipped during the first quarter of 2014. (Source: idc.com, press release, “Wearable Market Remained Strong in the First Quarter Despite the Pending Debut of the Apple Watch, Says IDC,” June 3, 2015; http://www.idc.com/getdoc.jsp?containerId=prUS25658315)
The clear leader among the wearables community is Fitbit, having sold 3.9 million devices, a 130% increase over the 1.7 million sold in the first quarter of 2014. The growth came on the heels of the release of three new products (“the Charge,” “Charge HR,” and “the Surge”) coupled with continued demand for its older “Flex” wristband.
What also changed was Fitbit’s worldwide dominance. In 2014, the company enjoyed a 44.7% market share. In the first quarter of 2015, its hold on the market slipped to 34.2%. What changed? Some new competition. Xiaomi entered the market in the second half of 2014 with its “Mi Band” fitness tracker.
While it has sold primarily in its home country of China, the numbers were still impressive. In the first quarter of 2015, Xiaomi shipped 2.8 million devices and captured 24.6% of the market. It had no market share in the same prior-year period. Should the Mi Band ship outside of China, you can expect that number to increase. Or rather, for Fitbit’s numbers to decrease.
There is another threat; the Apple Watch. The world’s most popular wearable watch launched in the U.S. in April and is currently available in Australia, Canada, China, France, Germany, Hong Kong, Japan, and the U.K. The Apple Watch will be launched in Italy, Mexico, Spain, South Korea, Singapore, Switzerland, and Taiwan on June 26, 2015.
While Apple has not released any Apple Watch sales figures yet, it says demand is outstripping supply. Some forecasts call for the company to ship at least 30 million Apple Watches in 2016.
Those sorts of numbers could put a crimp in Fitbit’s IPO price and market share.
Is Apple Watch a Threat to Fitbit?
It’s impossible that Fitbit is an insular office that is unaware the Apple Watch is launching worldwide in 2015. In the company’s SEC filing, they list what they believe are the features that set Fitbit apart. And what helps Fitbit make money. That includes its software technologies, mobile compatibility, broad market reach, networking effects and social features, and the potential for generating new revenue from premium subscriptions.
Is the Apple Watch a threat to Fitbit? It’s the proverbial yes and no. Yes, the Apple Watch is a threat because it’s an Apple product and consumers are brand loyal. And there must be a reason that Fitbit and Apple are no longer friends. Up until November 2014, Apple sold Fitbit devices in Apple stores. Not anymore. Moreover, Fitbit does not support Apple’s “HealthKit” software for obvious reasons.
Over the ensuing months, once the Fitbit IPO hits and the Apple Watch launches worldwide, the pendulum will swing and Fitbit and Apple will fight it out for market share.
Fitbit is an inexpensive ($60.00 to $250.00), easy-to-wear device designed for those with fitness in mind. The Apple Watch, on the other hand, strikes me as a more expensive ($350.00 entry point), bigger, chunkier, more complex product designed for those with more than their heart rate in mind.
The Apple Watch is simply not a fitness tracker. I know; it’s so much more! But maybe Fitbit aficionados don’t want that. And that is where Fitbit will find its niche. Fitbit is for those who want a wearable fitness device. The Apple Watch is for those who love Apple products and/or are hardcore early adopters, the latter of which may or may not continue to wear the Apple Watch after something else comes along.