Markman Capital Insight

Why Fitbit's IPO Could Soar

Now let's turn to a more interesting subject -- tech product development.

Fitness wearables maker Fitbit (FIT) filed for a $100 million initial public offering last week on the NYSE, bagging a cute ticker for a company that's poised to undercut Apple (AAPL). To cut to the quick: While Apple will try to dominate the market for high-end smartwatches, FIT is poised to stake out ground on the low end with its cheaper, "Look at me, I exercise!" devices.

Keep in mind that fashion choices -- like product marketing -- are all about sending a message. A classic navy suit and burgundy tie signals conservatism and maturity during a job interview. A GoPro (GPRO) camera strapped to a mountain biker's helmet signals an intent to shred the trail. A gold Apple watch signals that you have money to burn. And so on.

Fitbit has already sold 20.8 million devices, with 10.9 million sold last year, as revenues ramp exponentially. Market share of fitness trackers, by dollars, amounts to 68% of all wearables according to the NPD Group. Sales totaled $745 million last year, up from $271 million in 2013. Fitbit is profitable too, earning nearly $132 million last year, which is terrific for a young firm.

Since the company launched its first Fitbit Tracker at the TechCrunch 50 conference in 2008, it has expanded its product offerings to six devices that track stats such as calories burned, steps taken, flights of stairs conquered and distance run. I bought the new Surge model for my wife, who is an avid medium-distance runner, and was delighted to see it was not too hard to set up and use.

Fitbit's IPO filing acknowledges the intense competition it faces, especially from the Apple Watch. Count on funds to be used for pervasive advertising. Unique branding, first-mover status and an attractive image could be powerful allies in the fight. This is called out in the filing as management contends that its brand has become "synonymous with the connected health and fitness category."

I caught myself falling into their marketing trap on Sunday. When I sat down next to a guy on a plane and saw a Fitbit on his wrist instead of a watch, my mind flashed the thought, "athlete."

Fitbit's tracking software is a strength, as well, including a social element that allows friends to compete on calories burned and steps taken using the power of friendly competition and humble-bragging to promote healthier lifestyles. Food tracking is another feature of note, allowing you to scan food product barcodes to track caloric intake. These features probably won't persist with users, but companies have to try a lot of different angles to find out what customers will end up loving.

With prices starting at $99, Fitbit offers a compelling low cost alternative to Apple's $349 Watch that may just carry a little more "street cred" by signaling a fitness focus instead of geek chic. The market is large: According to International Data Corporation, spending on wearable devices is growing faster than any other segment of the consumer electronics marketplace. Last year, shipments of wearables more than tripled over 2013 levels to reach a total of 21 million units.

Over the next three years, IDC expects the market to swell to 114 million units -- nearly a $34 billion market.

I'm going to look seriously at FIT when it comes public. Most of these popular device stocks, like GoPro, have had a strong initial run post-IPO even though all the value-focused pundits cluck-cluck. Ultimately these stocks run out of fuel and fall back to earth, but not for a few weeks. Fitbit will be modestly unique in that it is actually making money.

In short, never underestimate the power of a fad, even in apparel.

-- One of the most famous and unlikely was Decker Outdoor (DECK), maker of the UGG boots and Teva sandals, which went from $1.40 in 2002 to $120 in 2011 -- an 8,500% move.

-- Mainstream fashion house Michael Kors Holdings (KORS) went from $20 in 2011 to $100 in 2014, a 400% move.

-- Fossil Group (FOSL), which makes unremarkable mass-market fashion watches, went from $5 in 2000 to $140 in 2012, a 1400% move.

The point is that consumer and athletic fashion companies can rise above their humble origins to become great stocks if products are well marketed, priced right and in synch with the public mood. Fitbit has as good a chance as any, and better than most, to hit the track running.