Fitbit Struggles To Stay Relevant

According to a research by P&S Market Research, the global wearable fitness tracker market is estimated to grow to $48.2 billion by 2023 driven by the increasing use of fitness tracking apps, demand for continuous health monitoring devices, and increasing disposable income. Billion Dollar Unicorn player Fitbit (NYSE:FIT) has been among the pioneers in the industry. But the company has continued to see its valuation dwindle since it went public in 2015.

Fitbit’s Financials

Fitbit’s recent results weren’t very impressive. Revenues for the quarter fell 17% to $247.9 million. They were marginally ahead of the Street’s forecast of $247.3 million. Losses have continued to grow as well. The company reported a net loss of $0.34 per share compared with $0.27 per share a year ago. On an adjusted basis though, the losses of $0.17 per share were better than the Street’s estimated $0.20 per share. A year ago, Fitbit had recorded losses of $0.15 per share on an adjusted basis.

Among operating metrics, Fitbit sold 2.2 million devices during the quarter, compared with 3 million sold last year.

It forecast revenues of $275-$295 million for the current quarter with an adjusted loss per share of $0.23-$0.27. The market had been forecasting revenues of $310 million and an adjusted per-share loss of 12 cents. Fitbit expects to end the year with net revenues of $1.5 billion.

According to IDC’s recently published results for the last quarter of fiscal 2017, Fitbit is no longer the market leader in the sector. IDC estimates that the company accounted for 14.2% of the market share by volume compared with 18.5% a year ago. During the same period, Apple’s share has gone up from 14.4% to 21%. For the calendar year 2017, Fitbit saw market share drop from 21.5% in 2016 to 13.3% in 2017, while Apple’s share rose from 10.8% to 15.3%.

Fitbit’s Expansion Plan

Fitbit continues to see a decline in the demand of fitness trackers as more people are transitioning to smartwatches that double up as trackers. Sales of its smartwatches nearly doubled for the quarter, and accounted for 30% of the revenues. It expects the overall mix for its revenues to continue to be skewed towards trackers.

Fitbit may have been a pioneer in the wearable tracker market, but it has definitely lost its first mover advantage. Last year, Fitbit had acquired smartwatch player, Pebble, for an estimated $23 million. The acquisition was a great deal for Fitbit considering that it had offered to buy Pebble for $740 million in 2015. It followed that with the $15 million acquisition of Vector Watch. Both Pebble and Vector failed to sustain their holdings in the market with Apple’s rising presence. Fitbit managed to buy them at a discount and has leveraged their assets to deliver its smartwatches. Fitbit has been slow to enter the smartwatch game. It released its first smartwatch, Ionic, only last year. By then, Apple’s smartwatch was already on its third release.

Earlier this spring, Fitbit released another version of its smartwatch – Versa. Versa was not available for sale for the reported quarter, but recent reports suggest positive feedback from the market. With Versa, Fitbit hopes to win some of its market back. It has priced Versa at $200, compared with the entry point of $300 for the Apple Watch. Besides the price, Versa also comes with added features such as being water-resistant up to 50 meters, and a long battery life. Time Magazine called it the biggest threat to the Apple Watch given the quality of its activity tracking and delivering notifications. Fitbit has also managed to grow its third-party apps marketplace. Versa users can choose from more than 550 third-party apps that include those from companies like Yelp, Starbucks, and Pandora.

Additionally, Fitbit plans to bring back some of its lost mojo through targeted acquisitions and tie-ups. It recently announced a tie-up with Google that will allow Fitbit to leverage Google’s expertise and resources to improve its product. Fitbit will also move its platform to Google Cloud so that it could benefit from advanced analytics and AI capabilities.

Earlier this year, Fitbit announced the acquisition of Twine Health, a coaching platform. The acquisition suggests that Fitbit wants to make its presence felt within the healthcare segment. Twine Health is a HIPAA-compliant, cloud-based health management platform that connects people with chronic conditions like diabetes and hypertension with coaches and doctors who can help them follow healthier lifestyles. Terms of the acquisition were not disclosed.

Its stock is trading at $5.19 with a market capitalization of $1.3 billion. It had touched a 52-week high of $7.32 in December last year and had fallen to a 52-week low of $4.51 last month. The stock’s current price is a far cry from the $20 that the stock had listed at nearly two years ago.

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