Your browser is not supported. Please update it.

4 November 2016

Sharpen the forks – Fitbit now a fifth of its $11bn peak

If someone says “wearables” in a word association game, chances are that the next word will be “Fitbit.” The US fitness tracker firm single handedly defined the global wearables market for so long and became the darling of the industry, which is automatically associated with success and piles of cash by many in the stock market – but this couldn’t be further from the truth.

It might come as a shock to some that Fibit’s fall from grace has been a dramatic one; in the second quarter of last year it had a market cap of around $11bn, but today it sits at just $1.86bn – this is not a typo, this is a genuine and catastrophic depreciation of 82%. Its results knocked around $1bn off its value, which was sitting at around $3bn last week.

It is not a well-kept secret that the wearables market as a whole has been slowing down for some time, but Fitbit’s stock price reduction of one-third this week is a realization by the stock market that wearables have reached their saturation point. More to the point, the market has become one of commoditization, unless your name is Apple, in which case you can carry on producing high-end smartwatches at a relatively small margin by Apple’s own high standards, with little impact on the overall business.

While Fitbit has found itself a niche fan base and Xiaomi’s Mi Band has also found favor at the low-end of the market, Apple is the only brand which can ship large volumes of expensive wearables – so once Apple finds itself some worthy competitors, who compete with its high-end watches, commoditization will have signalled the end of the wearable glory-days. Every segment of the wearables market will have reached commidity status.

It is difficult to gain a clear view of the entire wearables market, largely because it is swamped by the Apple Watch. A report published this week by Canalys reports that total smartwatch shipments increased year-on-year by 60% to 6.1 million in Q3 2016 – of which Apple Watches accounted for a dominant 2.8 million shipments. The various Apple Watch 2 models average out at around $450, so that’s an estimated revenue of some $1.26bn for the quarter – more than double that brought in by Fitbit.

Various other brands of smartwatches are typically twice the price of an average fitness wearable, at around $200 to $300, but also seem to represent decent business for the likes of Samsung, LG, and Motorola – but not the runaway successes that many were expecting.

IDC’s numbers have also been published this week, and tell a somewhat different story to Canalys. IDC says that smartwatch shipments in Q3 declined 51% to 2.7m. While the two firms evidently have quite a bit of distance between them, the disagreement goes someway to showing the confusing state of the industry that investors are presented with – and goes a long way to explaining why Fitbit was so overvalued by the market.

Fitbit grew revenues for the third quarter by 23% to $504 million, with 5.3 million units sold in the quarter, up 11%, but with net income plummeting by almost $20m to $26.1m for the quarter. The rounding error on its historic market cap of around $10.68bn is now bigger than its quarterly net income.

Something to lighten the mood of any wearables investors that might be reading this, there is a new craze – wearables for pets. A company called Poof has just launched devices that aren’t your run of the mill pet tracker (although this remains the primary function), as the devices also measure calories burned and sleep patterns. The Pea retails at $39.99 and the Bean at $49.99.

Fitbit was prepared for this eventuality, as its annual report in February this year included the following warning message: “We believe many of our competitors and potential competitors have significant competitive advantages, including longer operating histories, ability to leverage their sales efforts and marketing expenditures across a broader portfolio of products and services, larger and broader customer bases, more established relationships with a larger number of suppliers, contract manufacturers, and channel partners, greater brand recognition, ability to leverage app stores which they may operate, and greater financial, research and development, marketing, distribution, and other resources than we do.”