Fitbit Has A Problem — And It Isn’t Apple Watch
It’s not bad to be Fitbit these days.
The president wears one. The company just filed for a $100 million IPO. Revenue will almost certainly top $1 billion this year.
And did we mention the profits?
“If you take out the stock compensation charges, these guys hit $191 million in profit last year at a 26% EBITDA margin,” Bloomberg’s Cory Johnson said on Thursday, after Fitbit’s financials became public for the first time.
“I’m completely shocked by this.”
Perhaps it shouldn’t be a surprise. Fitbit’s rapidly gained users and buzz, as the wearable movement has gained steam.
Year-over-year sales were up 144% in the first quarter, the IPO filings revealed.
Yet some see the eight-year-old company’s popularity as a fad, especially with the launch of Apple AAPL +1.82% Watch last month. The popular wisdom — at least among those who aren’t watching closely — is that Fitbit is IPOing because it’s scared it will get crushed by Apple.
“Fitbit filing a sucker IPO before Apple Watch puts it out of business?” tweeted Vox’s Matt Yglesias.
But Fitbit’s problem isn’t Apple. It’s applicability.
There are still major questions over whether wearables can lead to sustainable health gains, and even if users can be reminded to wear them out the door.
(Although among wearables, Fitbit holds the title as the “stickiest” — its users are most likely to stick with it for longest.)
Why do 15% of Fitbit users “disconnect” within the first 30 days? Having interviewed a few dozen people about their Fitbits, I find that three common types of customers end up quickly disenchanted.
• The cohort of already-fit users who initially enjoy quantifying their workouts, but realize they don’t need Fitbit’s tracking technology to stay healthy.
• A group of reasonably active people who end up frustrated by the device’s goal of 10,000 steps, or forget to regularly wear it.
• A cohort of less healthy customers, who hoped Fitbit would get them into shape but quickly abandon the device when it doesn’t.
And overall, those frustrations and forgotten wearables add up to a lot of Fitbit drop-outs.
“42% of people stop wearing fitness trackers after 6 months,” Wall Street Journal technology columnist Christopher Mims tweeted.
“Any growth left for FitBit is just people who haven’t tried, discarded it yet.”
That’s probably too harsh; Apple’s entry into the wearables market will likely help Fitbit in the short-term, by increasing awareness and interest. Especially because Fitbit devices cost a fraction of Apple’s watches: Fitbit prices range from $59 to $250, while the Apple Watch entry price is $350.
“We believe that we have been one of the drivers of the growth of the wearable devices market, and that the future growth of this market represents a significant opportunity for us,” Fitbit said in its SEC filing statement.
I heard a similar sentiment from Derek Newell, CEO of Jiff (an enterprise benefits management software company), when we spoke back in February.
“Apple’s not a category killer,” Newell predicted at the time.
“If so, you would’ve seen products like Fitbit go away when Apple iPhone began offering tracking. [But] Fitbit, Jawbone, and other wearables are doing better than ever.”
Still, Mims is hitting the right weak spot in Fitbit’s pitch. To thrive in an increasingly competitive market, the company needs to find a way to curb the drop-out rate among users and show them real, sustainable health gains.
And Newell made another smart point: If wearables are going to stick around, there’s another set of customers who need to be convinced of their value.
“The question for insurers, big companies, and other payers is now: how can I use all this data?” he said.