Fitbit - Fad Or Long Term Investment Trend?
In the last few years, we have seen activity trackers become very popular. As opposed to a fad, we reveal below why they are a serious long term investment trend.
So what exactly are activity trackers?
Activity trackers are wearable devices that track your daily steps, calories burned and distances travelled. More advanced products will even track your sleep quality, heart rate and GPS-based information (e.g. exercise speed, distance, routes). This data is stored wirelessly via the device or a mobile app allowing users to track and improve their health and fitness levels over time.
There are also a wide range of pure mobile fitness apps that can be downloaded onto smartphones although these lack many of the above features of dedicated activity trackers. The arrival of the Apple Watch this year signalled an attempt by Apple to integrate its mobile technology with health and fitness tracking functions.
Fitbit is the most popular activity tracker
Established in 2007, Fitbit is the leading producer of activity trackers globally. It has sold over 30 million devices since inception including 13.1 million devices so far in 2015. As of June 2015, Fitbit held a 25% global market share based on the number of devices sold. In comparison, Apple sold 3.6 million devices in the same period, equating to a 20% global market share.
However, as both Fitbit and Apple sell premium priced products, both their market shares are actually much higher based on the value of their sales.
There is no doubt that competition is growing in this market. Nonetheless, Fitbit has continued to grow the sales of its devices – it sold 3.9 million, 4.4 million and 4.8 million devices in the first 3 quarters of 2015. This was partially driven by the release in late 2014 of Fitbit’s own smartwatch, the Surge. In the first quarter of 2015, the Fitbit Surge had a 61% market share of the United States GPS fitness watch market.
A rapidly growing industry – the pie is getting bigger and more diverse
According to IDC, the global market for activity trackers tripled in 2014 with 19.6 million sold devices globally. In the second quarter of 2015, 18.1 million devices were sold and this is expected to grow to more than 126 million devices by 2019, which is more than a 6 fold increase from 2014.
We also believe there are other opportunities in the industry that will also drive growth. These include:
- Corporations adopting corporate wellness programs to encourage fitness amongst its employees – an example is Fitbit’s agreement to supply its activity trackers to Target Corporation’s 335,000 employees in the United States.
- Use of information obtained activity trackers by insurance companies to better understand the health of its customers and tailor health plans – MLC in Australia recently announced a trial with 1,500 existing customers.
- Increasing use of subscription-based premium services – as of March 2015, Fitbit had 19 million registered users who have the ability to access tailored information based on their activity data for a small monthly fee. This currently only represents 1% of Fitbit’s revenues.
- Fitbit expects over 70% growth in net profit for 2015
Fitbit listed in June 2015 and recently announced sales of over US$1.1 billion for the 9 months to September 2015 with net income of US$167 million, compared to its 2014 full year sales of US$745 million and net income of US$131 million. For the 2015 full year, Fitbit has forecast sales of US$1.8 billion and net income of US$224 million, which is a 71% increase from 2014.
Sales have grown 3 times over the preceding year in international markets, compared to the United States market where sales growth was 130%.
So, where to from here for Fitbit?
There is plenty of conjecture that activity trackers could be a passing fad but the adoption rates do not reflect this view. People are increasingly using technology to improve their health with fitness tracking an important extension of this trend.
What we are most excited about is the potential for activity trackers and the data generated by them to be used in broader applications in the healthcare and insurance industries. It opens up a larger and more diverse market for companies like Fitbit.
Competition is intensifying but Fitbit has responded to the challenge from Apple and other device makers. To stay in front as a winner in this long term trend, it will need to continue innovating with its software and hardware. If you believe people will want to keep tracking their fitness regime as part of a broader trend towards healthy living, then Fitbit shares could well be a worthwhile and fast growing investment.
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Kent Kwan is a co-founder of AtlasTrend, a global equities fund manager that makes it easy for anyone to invest in the world's most thriving trends.
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