According to Renaissance Capital, this week turned out to be rather exciting for investors with a total of 11 companies going public. Out of these, Fitbit’s Initial Public Offering (IPO) — scheduled for Jun 18 — has become the talk of the town.
Set to become the “first pure play in the wearable technology domain to public” (Bidness Etc), Fitbit, on Wednesday, priced its IPO at $20 per share, a little more than $19 as anticipated by the company earlier this week. This IPO price gives the company a valuation of $4.1 billion.
Ready to debut on the New York Stock Exchange under the ticker symbol “FIT”, the company raised $732 million from the offering. The firm plans to use the money raised for research and development and possible acquisitions.
The Yays of Being FIT
Fitbit — the world’s leading maker of fitness tracking equipment— has attracted the attention of investors because of its solid financials and market share. In the first quarter of 2015, the company reported a net income of $48 million — a fivefold increase year over year. The company sold 3.9 million devices in the quarter.
Additionally, Fitbit meets the benchmark set by Tech investors to go public. According to CNBC, “Tech investors often talk about $100 million in annual revenue as the bar to going public. Fitbit is doing twice that in bottom-line profit, and in the first quarter alone posted $337 million in sales.”
Further, CNBC reports that Fitbit’s fitness tracking devices produce gross margin of nearly 50%.
As per NPD, Fitbit has a 76% share in the wearable fitness tracker market. According to Fitbit, its current market share to be 85%.
In addition, the company lists 30 Fortune 500 companies as its customers that purchase these trackers for employees as part of wellness programs.
J.P. Gownder, an analyst at Forrester Research, believes that, "They have very strong brand-name recognition." Moreover, according to Gownder, "They are the leader in the space."
The Nays of FIT
Maintaining its market dominance will be quite a task for Fitbit. Apple (AAPL - Free Report) has just launched the Apple Watch, which starts at $349, and many big manufacturers are developing connected devices on Google's (GOOGL - Free Report) Android operating system. Competition is persistently increasing, and it might compel Fitbit to slash prices to maintain market share, in turn taking a toll on its margins.
Apart from this, recently, Jawbone sued Fitbit twice. Last month, it said that Fitbit and a group of employees who quit Jawbone to work for Fitbit stole trade secrets, business plans, market research and other information.
Earlier this month, Jawbone said nearly all of Fitbit's products infringe patents belonging to Jawbone, and asked the court to stop Fitbit from manufacturing and selling those products. Fitbit has decided to defend itself against both the lawsuits.
Research firm IDC estimates that shipments of wearable devices tripled to 19.6 million units in 2014 from the previous year. It expects the market for wearable devices will top 126 million units in 2019. Considering Fitbit’s financials; market share and continued growth in the global market for connected devices, it might be a prudent idea for investors to get FIT.
A couple of better-ranked stocks in the industry are PetMed Express, Inc. (PETS - Free Report) and Synacor, Inc. (SYNC - Free Report) .Both carry a Zacks Rank #2 (Buy).
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