Fitbit Inc.’s Health Promoting Wristband Poised to Storm Markets
With the health craze taking America by storm, you might be wondering how you too can make profit on the explosion in health-related products. Fitness IPOs are doing exceptionally well at the moment. The Fitbit Inc. (NYSE:FIT) IPO was one of the year’s best. Fitbit stock had in fact nearly doubled in value since its initial public offering in June, but has lately hit some market turbulence and dropped approximately 17% in value.
Fitbit stock first began its sharp drop on August 5th, following the company reporting its very first quarterly earnings report. The big story at the time was how Apple’s new watch would destabilize the wearable fitness device market, which ended up taking large chunks out of FIT stock. (Source: Bloomberg, last accessed September 29, 2015.)
To put that into perspective, Fitbit still did exceptionally well from a strictly financial point of view. Revenues stood at over $400 million, significantly outperforming analysts forecasts of $319 million. (Source: Fitbit, last accessed September 29, 2015.)
So what approach will Fitbit take to improve the FIT stock price?
Long Growth Runway is Bullish for Fitbit Stock
Fitbit landed one of its largest ever contracts just last month, as it announced a partnership with retail giant Target Corp. (NYSE:TGT). The retail chain has expressed a desire to offer the device to its 300,000 employees as part of a multi-pronged strategy to raise fitness levels and reduce overall healthcare expenses. (Source: Business Insider, last accessed September 29, 2015.)
What does Fitbit do for employees, you ask? This device that you wear on your wrist allows a person to track their level of activity. In a corporate framework, this quantification of physical exercise allows for companies to incentivizing employees to get more active and thus healthier. The worker gets healthier and happier, and the company saves money through less health insurance claims, which keeps them happy.
Fitbit has a good track record of providing value to other companies by reducing overall health benefit claims through keeping employees healthier. As more and more large companies are recognizing the benefits of keeping their workforce healthier, Fitbit will have to ensure it stays at the cutting edge of crafting innovative corporate partnerships.
These agreements, between Fitbit and larger corporations, make up only about 10% of Fitbit’s overall revenue. It’s also the fastest-growing segment in the company’s business model. (Source: Fortune, last accessed September 29, 2015.)
Corporate wellness as an emerging market is on the brink of massive rise in popularity. Current estimates are that the industry is set to be worth about $11.0 billion per year by 2019. (Source: MobiHealthNews, last accessed September 29, 2015.) And who will be the company best positioned to tap into this market?
You guessed it; Fitbit.
The company currently has revenues in the neighborhood of $1.3 billion per year. (Source: Wyatt Research, last accessed September 29, 2015.) So imagine what will happen when more and more companies begin ordering Fitbits for their workers.
It’s only a matter of time before the recognition that healthier workforces are win-win situations for both employers and employees goes mainstream. When that happens, Fitbit stock is all but certain to soar.
You don’t need an MBA to figure out why this is such a great winning combination, and why Fitbit stock just might skyrocket as a result.
Can Fitbit Inc. Stay Ahead of the Technology Curve?
Using and staying up to date with current technologies is no easy task. Fitbit will have its work cut out for it in this regard.
What will be the most likely development is Fitbit developing its own tech-ecosystem, with multiple products and services spread across several platforms, both physical and digital.
Innovation, then, is key to success. Fitbit has recognized this fact and is currently pouring enormous sums of cash into research and development to address these questions. (Source: Fortune, last accessed September 29, 2015.) If past success is any indication, the company will come up with answers.
What about the overall market?
It’s tempting to view emerging markets such as the new one centered on wearable health devices as a zero-sum game where there can only be one winner. This line of thinking leads to conclusions like the Apple Watch soon displacing Fitbit in the marketplace.
Apple Watches might be great products and outshine Fitbit through sheer capability, but that doesn’t mean they will be able to compete with Fitbit’s devotion to the still-small corporate wellness niche.
If Fitbit is able to develop a tech ecosystem which both maintains user interest and draws in new users, as well as an incentive for people to upgrade their devices, it just might have the winning formula to be a leader in the wearable fitness market.
Perhaps not everyone will be drawn to a novel new product with strong value, but Fitbit stock is likely to soar with or without these detractors.