Apple Watch Shortfalls Boost Fitbit's Prospects
For investors in Fitbit, the biggest player in the increasingly competitive wearable-device market, the good news is that Apple still has a ways to go.
True, the tech giant's latest arm candy includes a GPS chip for more accurate tracking when its users are exercising (or Pokémon Go hunting). It's also water resistant, making it more appealing to swimmers and surfers. Runners will even have the option of buying a lightweight model that's being developed in partnership with Nike.
But all in all, the new watch doesn't really include any features that make it a "must-own" for fitness enthusiasts, especially considering the new models start at $369, compared with $200 for Fitbit's Blaze. The latest Apple Watch is also estimated to have a battery life of just one day, while the Blaze claims to be able to run up to five days without need of a recharge.
Fitbit, which also recently announced new product upgrades, has another meaningful one-up on Apple: its devices have the advantage of being compatible with Android devices, which is notable considering the software powers almost 9 in every 10 new phones across the globe.
These advantages matter, and the onus is on Fitbit to keep its leading edge. Shares of the San Francisco-based company have already lost half their value this year on concern competition from Apple and other device makers like Jawbone and Garmin will erode its market share. The declines were enough to make the stock the sixth-worst performer in the Russell 1000 Index so far in 2016. (It traded at $14.67 Friday morning.)
It's understandable for investors to be wary about whether Fitbit can maintain its dominant position in such a fast-growing and competitive market. But after its drop, the stock now trades at a more reasonable forward price to earnings multiple of 10.9, well down from 22.9 at the start of the year and 50-plus after its June 2015 initial public offering.
Wall Street is beginning to rally behind Fitbit, in part because its dominance appears assured for the time being. Mizuho's Betty Chen describes Fitbit's 17 million active user base as an "unparalleled ecosystem" that itself can enhance engagement. If Fitbit owners are involved in weekly step challenges, they're more inclined to regularly wear their devices and purchase new models or accessories.
Along with rivals like Apple, Fitbit is aiming to broaden its customer base by making its devices a meaningful part of the health-care community. Fitbit trackers have been involved in some 200 studies over the past four years, testing things like the improved fitness of patients awaiting liver transplants, among other things. Its inexpensiveness (the most basic tracker starts at $60) leaves it as a more likely tool for mass-market health-monitoring.
Analysts have an average price target of $21.38 on the stock, indicating they expect Fitbit shares to return to health over the next 12 months. Less heat from the competition and ongoing quarterly earnings beats certainly leave the chances of a recovery rally on track.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
To contact the author of this story: Gillian Tan in New York at email@example.com.