FitBit, the undisputed leader in fitness bands, is seeking to raise up to $478m in IPO proceeds in 2015. The success of this IPO will largely depend on the future prospects of standalone fitness bands and the ability of FitBit to create new revenue streams to compete with emerging wearables such as smart watches. In the short to medium term, the demand for fitness bands will remain healthy due to the gulf in the level of data accuracy offered by fitness bands compared with smart watches. However the long-term prospects of standalone fitness bands look dim as consumers increasingly prefer smart watches and it is likely that smart-watch sales will surpass those of fitness bands within a few years. According to Ovum estimates, the yearly unit sales of smartwatches are expected to grow 10 times to over 200 million by 2020, up from 29 million in 2015. FitBit has already ventured into the smart watch category, but with little success to date. Vendors in the fitness bands segment including FitBit will have to figure out new ways to make their mark in the smart watch market and also explore new partnerships and opportunities for monetizing the valuable data they collect; for example, in future, insurance companies are likely to use fitness data to determine renewal premiums. Without new development roadmaps, these companies’ long-term revenue growth prospects will remain limited.
Overdependence on fitness bands raises concerns about long-term growth prospects
As FitBit seeks to raise funds through the IPO route, it will be interesting to see if the vendor will be able to convince investors. FitBit has many positives in its favor. The vendor is the clear leader in the fitness band segment which is crowded with competing products such as Garmin, Misfit, and Jawbone: FitBit claims it has close to 68% share of the fitness band segment. Added to this, the vendor has reached profitability, reporting $745m in revenue in 2014. FitBit returned a healthy profit of $132m and doubled its user base to 10.9 million in 2014. But there are challenges ahead. According to industry estimates, FitBit has a market share of less than 50% in the overall wearables market. The vendor’s market share of wearables continues to fall as consumers start to shift towards smart watches with some segments losing interest in fitness bands. Although brand loyalty and superiority in data accuracy will help the vendor retain its existing user base, the larger question is whether this alone will keep its investors satisfied. More importantly, smartphone manufacturers such as Microsoft, Samsung, and Apple have used their brand value and large marketing budgets to gain consumers’ attention. Many feel this is one of the key factors, along with poor measurement accuracy and data analysis capabilities, which led to the failure of FitBit’s Surge smart watch. This raises doubts about FitBit’s ability to learn and catch-up with the market that is crowded with new wearables.
In Ovum’s view, it will be a significant challenge for FitBit to venture in to the smart watch space given the need for wearables to not only track and collate data but also produce actionable insights out of them. In this area, it is critical that FitBit develops new partnerships. These factors are raising concerns among investors who will be wary of the lack of visibility in FitBit’s long-term plan for revenue growth.
A Manifesto for Successful Consumer Wearables, TE0004-000997 (November 2014)
Wearable Devices: Opportunity Sizing and Recommendations, TE0004-001007 (December 2014)
Srikanth Venkataraman, Analyst, Healthcare Technology