From a standing start less than ten years ago, Fitbit Inc. (NYSE:FIT) has grown into a company with sales of almost US$2bn. It has been a remarkable growth story.
Fitbit essentially created a new product category, wearable technology. Its products record a multitude of things we previously didn’t know we needed to measure every second of the day, including heart rate, sleep quality and how many steps we took to grab that afternoon double vanilla latte. It has launched new products and entered new markets. Almost as impressively, it has generated solid and growing profits when many of its Silicon Valley brethren are struggling to prove their business models.
So then why is its stock price down 73% in the last 11 months? Something seems to be amiss. In the most recent quarter, Fitbit reported a 92% increase in sales, a 15% operating profit margin, and 37% growth in earnings per share. It has a ton of cash and no debt. These are drool-worthy results. Yet it is trading at only 12 times 2016 expected earnings. Any other tech company with similar results would be trading at astronomical multiples. Facebook? Try 37 times next year’s earnings. Twitter? A cool 29 times. Square isn’t even expected to be profitable next year but while Fitbit is selling for less than one year’s revenue, Square trades at more than six times.
Truth be told, those aren’t fair comparisons. For all of Fitbit’s success, it is mainly a consumer gadget company. Perhaps a more worthwhile comparison is Apple, which also trades at 12 times earnings. Both companies need to keep selling vast amounts of physical product each year just to maintain their current profitability. The others mentioned are software driven platforms selling services that are much harder to replicate.
And that’s the rub. It is hard to imagine a world where everyone suddenly stops using Facebook. But your Fitbit? Now that your smartphone is able to provide you all the same data, you might just chuck it in the trash. Maybe you already have.
This is why the stock has collapsed and why it trades at such a low P/E ratio. These other companies trade at higher ratios because investors believe they will continue to grow at elevated rates, and at some point in the future, those ratios won’t look so high. Investors in Fitbit obviously do not believe it will continue its dizzying level of growth. Is this the next Kodak?
So here is my question to you? Will you Fitbit in the future? Are you familiar with its devices, and do you believe it provides a compelling service? The company is attempting to do more with its data and connection to the consumer by offering specialised health tracking services. Is this of interest, and does it differentiate Fitbit in any way? Is your historical data important to you? If you are considering a new device, would the fact that your historical data is with Fitbit likely sway your decision?
I’m curious to know what people think and appreciate any feedback.
I bought my daughter a Fitbit Charge HR for Christmas. She doesn’t wear it constantly but likes it. She’s into sport, wears it when doing sporty stuff I. I got the same one for my birthday the other day. I haven’t worn a watch for 15 years and 2 weeks later, I’m still wearing it. I cycle to work, and I guess I do use it as a bit of a motivator / challenge thing. I like the heart rate aspect of it, though not entirely convinced it is accurate. I did read somewhere that people buy them for a year and then don’t re-new. If I hadn’t got one as a present, I might have been on the market for a GPS one that also measures distance and speed. On the face of it, the Fitbit Blaze appeals, but I would need to do more research. Garmin would be of interest. I also hear rumours that in the future some of these devices will be able to measure blood sugar & cholesterol. Having said all, my Fitbit is currently not on my wrist, as it needs charging, and I’m enjoying not wearing anything on my wrist again !
The key question is – does Fitbit actually have any control over the ecosystem or is it just a cheap bit of hardware with standardized components? There’s a few parts of this area:
1. Social network / network externality driven part of the business. Jawbone does a pretty good job here, fitbit just ok.
2. hardware. Generally bad biz, sensors best gotten from someone else. Mostly comes down to brand and packaging if you want any margin whatsoever. Apple watch battery life awful but if they stripped it down might be very competitive.
3. APIs / integration / UI / software. Does Fitbit cut it versus others? Not really – hard to port data because they have anxieties about being irrelevant if they do. Apple would likely win here along with android wear. No ecosystem angle here.
Bottom line, a mediocre hardware company with no material moat.
Think back to technology cycles of prior decades – what ended up being a better business? Selling TVs, or selling cable TV subscriptions? The analogy seems pretty apt.
I have a Fitbit Charge HR and have done so for about 9 months.
I have worn it religiously since I have had it. I initially thought that it would be a pain to have to charge it every couple of days… but I just pop it on charge when I have a shower in the morning and that keeps it going although it will have less and less charge in it each day due to the short charge time so every weekend it will need an extra burst of an hour of charge but it’s not too bad.
I initially got it because I had put on a stack of weight (working in a particularly sedentary job) and thought that it would encourage me to do that little bit more exercise every day. Which was true to start with – I did find myself getting home from work late at night – seeing that I had done only 5 or 6 thousand steps and then going for a walk (even if it was just a couple of laps around the block) before bed. That lasted about 3 months I suppose. Now I just wear it out of habit and I don’t think that it changes my behaviour (read: bad habits) at all.
I don’t regularly sync it to get the data off – not helped by the fact that my only phone is a blackberry (running on the blackberry platform – so no fitbit app) so it’s only when I play around with my android tablet that I actually bother to sync it.
The data is interesting to a point – but the heartrate and stairs are certainly not accurate as fitbit makes out. I can be sitting at my desk doing not very much and have a sky high heartrate and have a really low heartrate after I climb the 10 flights of stairs in my building and am gasping for air. The stairs climbed function gets confused with escalators – which is not the best when you take the tub two and from work and get on and off at two of the deepest stations in the network.
My biggest irritation is changing the time on it. I travel more or less every week (invariably with a different timezone) and the process for changing the time on the fitbit is quite a pain – so much so that when I am on the road I have given up wasting time doing it and now just remember that my watch is an hour out (which is poor for a watch I suppose – particularly when there is a daylight savings change as there was on the weekend and I deprived myself of an hour of sleep by not realising that the fitbit had auto-updated even though it hadn’t been synced for weeks).
I personally think that the fitbit is a good invention but on balance probably a little bit gimmicky. As and when mine stops working I probably won’t replace it and will go back to my trusty swatch watch which takes no more than 5 seconds to roll forward or back an hour.
I don’t own a Fitbit but have had a Garmin wearable and now a Jawbone up3. I’m pretty sure I will use these or another device now permanently.
I updated as from the Garmin as more features were made available on the next generation of wearables. I can see myself upgrading to the next feature rich wearable again in the future (not necessarily fit bit, but whatever seems best at the time).
There’s quite a bit of competition in this space now and only more to come. I wouldn’t buy a Fitbit just for the brand name (and haven’t).
I wonder if it wouldn’t be a better play on this space looking at the manufacturers of MEMS components (the tiny sensors and components used in these devices), or a software company that can pull the massive amount of data generated by all of your health related devices and turn it into something permanent and meaningful – Imagine upgrading your device and you still had all your old data there from your previous wearable of a different brand.
Nice blog Kevin.
I’m a Garmin advocate myself but know lots of people who use Fitbit and would upgrade to the newer Fitbit models – perhaps that is where some of the future revenue could come from.
Strava is an online platform which Fitbit, Garmin and many other brands can connect to. This is potentially a place people wanting to switch brands and not lose historical data can use (although pretty sure Strava is mainly used by geeky triathletes and cyclists like me rather than the everyday Fitbit user!!)
There are also other network effects (albeit very weak) here as well. For example many of the top personal insurance companies (AIA and their Vitality program, Bupa, Medicare etc) offer discounts based on client lifestyle choices. By having a Fitbit and getting your 10,000 steps each day can end up saving you a lot in premiums (up to 10%+ in cases). These discounts only last for 12 months meaning you have to keep up the exercise and keep the Fitbit on your wrist! Many financial advisors even give away Fitbits to new clients that start an insurance policy.
Insurance premiums continue to increase every year so it wouldn’t surprise me if more and more insurers start similar programs to AIA’s Vitality and clients might actually engage with them to save a few bucks.
I have no interest in these things at all.
BTW: I’m a grey haired technologist, working every day on new technical developments for new products. But wearable gadgets? Seriously? Life’s too short, and these things are gimmicks. I have a busy enough life as it is without putting more valuable time into fiddling with something telling me my heart is still beating.
Never been tempted to buy as I prefer all technology on my phone. I use Strava for running and riding and I’ve seen guys using Strava for steps and rowing.
Fitbit is a great idea for the gift market, and has appeal for extroverts, but if I received one, I’d re gift it to someone else as I wouldn’t use it.
Having said that, anything that promotes fitness in our society should be encouraged.
Good question, I think the above commenters seem to cover it quite well. However, companies like Apple have a bit more of an ecosystem around their product as compared to a Fitbit. Eg i-phone links to your imac which links to all your other i-devices and i-apps (sorry, windows user) which Fitbit seems to largely lack.
As someone who measures and aims to improve things like resting heartrate and other stats, the increased data provided by Fitbit would be really useful. But I doubt the improved data is going to be of much use to the average consumer, and increased specialisation seems to push the Fitbit more into Garmin etc territory, as mentioned above.
That said both Apple and Fitbit are cashed up which gives them plenty of opportunity to go in new directions, and they’re not priced for much more than mediocrity.
I don’t plan to fitbit. I ride and have resisted a garmin.
I recently got onto the Strava app on the smart phone… it works brilliantly for running and riding and its free. I think such apps are a valid competitive threat.
I don’t like wear unnecessary things as I feel not comfortable.
I’ve been using one for the last few months, but for different reasons than most people. I’m mostly interested in the long term cyclical changes in my heart rate and sleeping patterns. I don’t plan on paying much attention to the data until I have a year’s worth.
Let me give you the context of the device in my life. Bi-polar is characterised by cycles of high and low moods. When someone with bi-polar, such as myself, tracks their daily mood over the long term (e.g. a year) the cycle can be shown very clearly, and being able to predict a ‘high’ period is extremely useful in controlling them, and during the ‘low’ periods it is very comforting to be able to predict when the period will end. The ability to predict cycles is very helpful in deciding how and when to adjust medications during the cycle.
It’s no secret that poor sleep can turn a ‘high’ period into serious mania (although they are self-reinforcing). So one of my reasons for using the Fitbit is to be able to track sleep patterns with no effort (recording it every day manually in a spreadsheet requires a huge amount of discipline). This might be really interesting data to have, although ideally you would then have alerts on your phone to tell you when you’re not getting enough sleep.
I have no idea if my resting heart rate will change over the cycle but I can’t wait to see if it does. If it does then it may be just one more variable a clever developer could plug into a predictive model in the future. I don’t really care if the heart rate monitor is a bit inaccurate, for me it just needs to be consistent.
As a side note, universities are currently developing apps that listen to the pitch and speed of your voice during calls, as well as the frequency, time, time of day etc of calls and texts. This data is then analysed and fed back to the user to predict mood cycles. This is certainly something I’d trial.
People with type 1 diabetes have the ability to constantly get direct objective feedback from their bodies and make adjustments as needed. Unfortunately bi-polar isn’t at that diagnostic stage yet because there aren’t any simple biological tests (yet) that can give you constant feedback on what stage of the cycle you are in.
Wearable technology like the Fitbit will play a large role in helping the 1-2% of the population with bi-polar. Will it be Fitbit that takes this market? Maybe. It won’t be a bi-polar specific device because most people choose to keep the condition confidential.
So for many people a Fitbit might be a short term gimmick, and so the fall in company valuation may be justified given this would be a large segment of their market. But wearable technology is here to stay for at least a subset of the population with particular health needs that benefit from tracking. The Fitbit is very comfortable which is important for sleeping, so I think they’re in a good position at the moment (compared to the Apple Watch for example). I’d revisit your thesis that a smartphone can do everything a Fitbit can do – I don’t think that’s entirely correct, so I’m not sure that the comparison to Kodak is either.
That being said, I think Justin’s point above about software companies being a good hunting ground is on the money. The future for me will be data being pulled from multiple devices and then simplified into meaningful information. It will be a classic Software as a Service business model, and unlike the physical devices collecting the data, it could be bi-polar specific. The value to customers would be immense, and the longer you pumped data into it the more valuable it would be (and so the more you would be willing to pay). Yes health insurance could go down, but also consider that I pay a 50% loading in my for superannuation death insurance thanks to the condition – maybe that could be reduced as well if customers had hard data showing they were looking after their mental health as well as their physical health.
What a brave new world we will be living in!
With Apple dropping their price for the Apple Watch to match the new Fitbit Blaze it says to me competitors are prepared to wear lower margins to break into this growing market.
I bought my wife a Fitbit surge. She wears it every day and loves it. We’ve had it replaced twice already under warranty so can’t vouch for its resilience as a day to day wearable.
I can see that these technologies have potential benefits over and above fashion items and fitness tools.
The Awful Person has raised a great point, do they have proven benefits in treating chronic disease; mood disorders, diabetes, sleep disorders, etc?
Any benefit here would have huge upside and I’d buy one.
Also, any penetration into new markets? Because again if there was growing interest in large untapped markets it sounds very tempting.
Haven’t listened to it yet, but the latest episode of FT Alphachat is about wearables.
https://itunes.apple.com/gb/podcast/ft-alphachat/id448302257?mt=2&i=365981699
Fitbit is merely the creator. There are now a heap of far cheaper knockoffs (see eg ASX listed IOT a new backdoor listing – absolutely NOT recommended BTW). Fitbit seems to be struggling to create the “must have” concept which Apple generally does have to its higher end customers. These things are highly commoditised because of the lack of unique eco-system around them. I love mine, I’ve worn it everywhere but the shower for 15 months. And of course, Fitbit has run smash bang into the big phone manufacturing companies who are experts at new products every two years – but trade at single digit P/E’s adjusted for cash/investments. If the product has a two year life, like a gold mine, maybe it should be a P/E of 2…….(not so cynical that I’m not long APPL at <$100)
One thing that I’ve noticed is that generally only unfit people wear fitbits.
People who routinely exercise at high intensity have a well enough developed sense of personal exertion that they don’t really need gadgets to tell them what they already intuitively know.
The Fatbutt will exist long after the Fitbit has gone.
I was gifted a Fitbit around 18 months ago, they’re a fun gimmicky product, but unless you’re very serious about fitness I feel they get old fast. My employer at the time also gifted them to the other 180 or so staff at the company, and this seemed to be a pretty universal response. The fitness nuts loved them and continue to use them as they’re much better at tracking than a phone – and who wants to go running with their iPhone 6S or Galaxy Note? For the vast majority of us, we lost interest within 6 months. I expect Fitbit will live on for the fitness enthusiasts, but I don’t see a lot of mainstream appeal.
story on abc radio as well.
https://radio.abc.net.au/programitem/pgml6m1Z56?play=true
I view it as a gimmick. After years of cycling using Garmin products I dont study past performance, because I know when Im fit and when Im not. I suspect the majority is like me, using functions/data from time to time but not super seriously for on going periods of time.
Interesting one Kevin.
A couple of comments.
1. I’ve owned 2x Fitbits (I bought one for Michelle but she stopped using it), and both crapped out in <1 year. I wasn’t using them in any strange way. They need to improve their build quality.
2. I found the ‘benefit’ (tracking, motivation, etc) faded pretty quickly. It’s hard to change behaviour and I’m not sure fitbit nails it. The app, etc, is useful, but having to charge and wear something, that’s actually pretty ugly, is a pain. Does a fitbit even solve the problem it claims too? Does measuring all this health data have any long term impact on behaviour? I'm not convinced. Most people I know who have owned one have had a similar experience. They bought one or were given one (a lot of companies have given them out) and in <6 months they’re not wearing it.
3. I also own the wifi scales. They’re actually quite useful. I still use them.
4. Fitbit was useful pre-iPhone 6 and Apple Watch. iPhones now track all your steps, etc, and I’m always carrying that anyway. And if I did want a fitness tracker I’d prefer an Apple Watch (although they’re far more expensive). Alternately it’s not feature rich enough to be a serious fitness companion. My sense is they have an identify issue. Are they for everyone? Or for fitness enthusiasts? Maybe they can pivot and create the greatest running watch ever? There might be a market in that. Why don’t they merge with or buy Strava?
5. Recent new fitbit products have been pretty underwhelming. The ‘Blaze’ has been universally panned. It feels like they're being forced to release product just to please the shareholders, while secretly they're not convinced it's a good idea.
6. Fitbit feels like another ‘Crocs’ to me. A product that caught the imagination of far more consumers than anyone ever imagined but hard to imagine it being a decent long term business
I recently bought a TomTom fitness watch, which I don’t use much for constant activity tracking, more for GPS functions and heart rate. Fitbit has an attractive competitor with those features, I believe.
My partner has owned a garmin fitness tracker for about 18 months, and she plans to replace it soon, probably not with a fitbit though.
From this tiny survey, tomtom has a future, but it has some well-established competitors.
The smartwatch segment is another one with big competitors, as another comment mentioned.
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Further to my comment back in March – the back plate (it’s a 2cm long bit of plastic) of my fitbit snapped in half recently – this has made charging very difficult.
Before giving up on it – I wrote to fitbit to see if I could buy the replacement part (it would only require a little glue).
The immediate response of customer service was ‘sorry we can’t help with the part, but we’re happy to send you a replacement at no cost’. Simultaneously with that email I got an email from their system which allowed me to plug my details in for the new watch.
They are obviously quite keen to keep people on the platform if they are giving away new units just like that.