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Fitbit Gains From Partnerships, Market Share Loss a Concern

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On Jan 2, we issued an updated research report on Fitbit Inc. , one of the leading providers of wearable fitness trackers.

Shares of Fitbit have declined 10.1% in the past 12 months, underperforming the 1.8% decline of the industry it belongs to.

Fitbit has made a lot of progress on the corporate wellness front, by selling fitness trackers and software subscriptions to employers as part of their corporate wellness programs. The company has already partnered with several enterprises and healthcare companies. It has over 1,300 enterprise customers and 70 of them are Fortune 500 companies.

Fitbit is witnessing strong international growth. The company has penetrated Indian and Chinese markets by entering into various partnership programs. In 2016, Fitbit generated 29% of its revenues, based on ship-to destinations, from outside the  United States. Currently, the company sells its products in 65 countries.

However, Fitbit’s growth has been slowing down with smartwatches outshining the fitness wearable category, influx of new wearables, lack of upgrades among existing users and lackluster growth in the Asia Pacific region. The company faces tough competition  for both high- and low-end products. The company’s biggest competitors are Apple, Xiaomi and Garmin. There are other big manufacturers too who are developing connected devices on Alphabet owned Google's Android operating system.

Fitbit is trying to maintain its foothold in the market. According to the latest International Data Corporation (IDC) report, Fitbit and Xiaomi tied at the top in terms of third-quarter 2017 shipment volumes, with each having shipped 3.6 million units. Apple  was pushed back to the third position with 2.7 million units shipped. In terms of market share, Xiaomi and Fitbit  hold 13.7% each, followed by Apple with 10.3% share.

To counter this headwind, Fitbit came up with its turnaround strategy. The company realigned its business into two parts — Consumer Health & Fitness and Enterprise Health. The Consumer Health & Fitness business focuses on delivering more efficient health and fitness devices while Enterprise Health focuses on building relationships with employees, insurance companies, health systems and healthcare partners.

The market for wearable fitness devices is continuously growing. Per IDC, the market for wearable devices will increase to 240.1 million units by 2021, at a compound annual growth rate (CAGR) of 18.2%. This presents significant growth opportunity for Fitbit and the company looks well positioned to capitalize on it.

Zacks Rank & Stocks to Consider

Fitbit has a Zacks Rank #3 (Hold).

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