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.