Fitbit : A Good Way To Invest In Your Wealth and Health?

20170222_01

20170222_02

Source: Google Finance (Based on 1 year chart. Stock Ticket: FIT – NYSE)

1. Summary of the Company

  • Pioneered the connected health and fitness market in 2007.
  • Offered a broad range of products to suit a variety of users.
  • Grown into 1 of the leading global health and fitness brand.

2. Products Offered

20170222_03_01

They offered a wide range of wearable which help to cater from the everyday users to performance users who want to have some form of tracking tool on their health and fitness.

In addition to their physical products, Fitbit also offer the following interactive items:-

  • Online Dashboard and Mobile App which sync with different devices (Windows, Apple or Android)
    • Premium Services – Virtual Coaching (Customized Fitness Plans and Exercise)
    • Fitbit Premium cost US$49.99/year.
    • FitStar cost US$7.99/month or US$39.99/year.

With the implementation of both physical and interactive offering, their products are designed to improve the users’ health and fitness.

Overall, their revenue is derived mostly from their physical products and accessories (99%). Less than 1% of their revenue is from their subscription services.

Their products are sold in the following channels:-

  • 54,000 retails stores in 65 countries
  • Retailers’ websites and its own online store, Fitbit.com
  • Corporate Wellness offering

3. Competitors and Market Share

20170222_04

20170222_05

Although there are many competitor who are getting into wearable devices industry but based on the latest market share information, Fitbit is leading by holding 23% (increase by 1.6% when compare between 3Q16 and 3Q15 market share). It is also the only company in the above listing that focus solely on wearable technology.

Based on their 2015 annual report, 74% of their revenue is generated within US whereas 26% is generated outside US.

In their 2016 quarterly report, it mentioned that within the 9 months ended on Oct 1, 2016, the revenue generated outside of US is 27% (an increase of 1% when compared with 2015).

I will be monitoring to see their 2016 annual report (in future) if their source of revenue outside of US will increase further. Although, they did mentioned a decline in growth rates in the APAC region.

20170222_06

4. Future Plans

  • Aim to build global brand awareness, increase product adoption
  • Drive sales through their sales and marketing efforts by significantly investing in those efforts in future.

5. Financial Analysis

20170222_07

Using the above financial information

20170222_08

6. Pending Lawsuits

  • Patent lawsuit with Jawbone and Body Media Inc (Early stages of litigation)
  • Class action lawsuit on their Sleep Tracking function (Trail is scheduled for 30th May 2017)
  • Class action lawsuit on their Heart Rate Tracking function
  • Federal Securities Class Action for false and misleading statements about the company’s product
  • State Securities Class Action on the allegation on the IPO registration statement contained material misstatements about the company’s products.

7. Fitbit Acquisition

  • 2015 – FitStar. This company which developing health and fitness apps that help people to streamline their workout session. Fitbit implemented their technology into their products.
  • 2016 – Coin. This company is the maker of ‘smart’ credit card that digitally holds all other credit card in a single device. Fitbit is interested in the company work on the wearable forms of payment. We might be able to see Fitbit implementing it into their future products.
  • 2016 – Pebble. This company deal with smartwatch as well. Fitbit has acquired its software assets so as to better compete with Apple in future.
  • 2017 – Vector Watch. This is a European smartwatch maker whose watches is catering to fashionistas and promising battery life of 30 days. Fitbit has acquired its team and software.

Based on the above acquisition, Fitbit seems to be acquiring business which they felt that it can be integrate or improve their future products. Maybe in the year 2017, we can see a Fitbit Watch which is fashionable, has a long-lasting battery life and contains the payment technology.

8. Conclusion

We might want to ask ourselves these questions before getting into this company:-

  1. Do you think wearable technology market can still grow or it will be remain stagnant?
  2. Do you think Fitbit can retain as the market leader for next 5 or 10 years?
  3. What’s the possibility of the other big companies who can implement better technology and better price than Fitbit?
  4. Their outstanding lawsuits, will it destroy the company?

In my opinion, I considered Fitbit as a growth company with the potential for growth since the wearable technology market is considered as a pretty young market.

Based on the current company financial, my valuation on the target buy price is $7.84 (Margin of Safety of 15%). As of 10 Jan 2017, the option premium seems to be quite high as well.

If you want to learn more about how to find cheap and good stocks to generate passive income for you, click on the picture below to join our Free Value Investing Masterclass.

20170222_09

Edmund Phua
Research Analyst, Mind Kinesis Value Investing Academy

Disclaimer: Please note that all information stated in this article is just for education purpose only and should not be used as any form of recommendation or advice.

Leave a Reply

Your email address will not be published. Required fields are marked *