The world of consumer technology moves incredibly quickly, and in that fast moving space, those who buy shares and get advice from options trading advisory services have the opportunity to make fantastic investments in the sector.
For example, twenty years ago the term “laptop computer” didn’t exist. Fifteen years ago the term “digital music player” was unheard of, before the iPod came to dominate the industry. And as recently as a decade ago, the category of products known as “smartphones” and “tablets” simply didn’t exist.
In the same way, even five years ago, the category of devices known as “fitness trackers” were still in their infancy. But the explosion of interest in these devices has seen several companies carve out profitable market niches. One of the most prominent of these, Fitbit Inc (NYSE:FIT) recently took the company public through an IPO process.
The level of market interest saw the stock record a strong first week of trade, reaching highs of above $35 from an offer price $17-$19 range, before settling slightly lower at just below $35. So does Fitbit have the energy to continue marching higher?
Understanding the Business
Much like Apple Inc, Fitbit Inc is a consumer electronics company. But Fitbit has a much narrower and niche focus on products that help users and wearers improve their health and fitness.
Fitbit is especially noted for helping to create a category of consumer products known as “wearable technology”. Fitbit focuses on researching, designing, manufacturing and marketing fitness tracking devices.
There are two broad classes of these devices. The first falls into the “clippable” devices that can be fixed to clothing or shoes to monitor the steps and movement of the wearer. The second, more popular class of is the wristband style devices that users place on their wrists. The first generation Fitbit Flex and second generation Fitbit Charge are examples of these wristband style devices.
Once a user wears these devices, they can obtain data on the amount of steps they take during a day, their heart rate, the distance travelled in a day, the amount of calories burned and even sleep statistics.
The company also creates a range of software that includes website based platforms as well as App Store and Android Store Apps. These platforms help collect, analyse and present the collected data in a user friendly way for wearers of the products. This in turn, encourages goal setting, continual monitoring and adjustments to increase the time that users spend with their products, and the effectiveness of those products in helping wearers reach their fitness goals.
Metrics and Measures
The sales figures and strong support for the IPO by institutional and retail investors paint a very attractive picture for the future prospects of Fitbit. In the last two years sales of the entire range of Fitbit products have expanded incredibly. In 2012, Fitbit recorded sales totalling $76 million. In the most recent full year, 2014, total sales were worth $745 million.
At the same time as sales went through the roof, the gross margins of the product expanded as well, rising from 41% to 50% as Fitbit began to reap the benefits of brand awareness, economies of scale and upgrades. All of these traits are looked upon favorably by options trading advisory services, as they indicate that future growth is more likely.
In addition, the market share of Fitbit in the categories that they compete is 34%, which is part of the reason that Fitbit is profitable. The market for wearable devices is expected to rise to 144 million units per year in 2017, from current levels of around 21 million units per year. This future growth potential was part of the reason the IPO offering was raised to a range of $17 – $19, up from the initial $14 – $16.
The Investment Case
The investment case for Fitbit is attractive, but not without risks. The biggest risk is increased competition from the likes of Garmin, Pebble and other established wearable technology companies. In addition, Apple Inc is the newest entrant to the wearable technology space with the launch of the Apple Watch.
The problem for Fitbit is that devices like the Apple Watch offer the “core” attractive features of the basic fitness tracker device but add on a range of other attractive
features. This has the effect of fragmenting the market and drawing customers away from Fitbit.
In addition, the company faces the reality that if a customer has one Fitbit, they are unlikely to purchase a second or third one. That means that each new model of fitness tracker has to be much more attractive for consumers in order to encourage them to upgrade their device from their current model.
Marketing and strong sponsorship is essential for companies like Fitbit to maintain their market share and status as “first preference” in their category, as other competitors work to erode their market leadership.
Conclusion
Fitbit Inc had a stellar IPO and has benefited from the strong demand for the new market of fitness trackers and wearable technology in recent years. Their future success will depend on the ability of management to continue to reinvest their profits in new research and development to create new products that encourage new fans of their products while at the same time incentivizing existing users to upgrade their products.
To find out about companies like Fitbit Inc that are creating new products for a potentially global consumer market, and that might be on the way to huge profits as well, it is important to be a subscriber to an in depth options trading newsletter like Financial Markets Wizard.
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