Kneel! Fibit

Fitbit is one of those companies that have done everything right but not been rewarded by the market  They have beat the estimates in most quarters since IPO a year ago, yet its stock dropped 60% from its offer price.  What shareholders seem to look for is not whether they beat the numbers, which have been set at a lower bar nowadays anyway, but what the guidance will be for the next quarters.

Incidentally, if you have followed the stock, whenever the big guys like Apple, Google, Amazon, or Facebook used the words “health,” or “wearables” in a sentence, Fibit’s stock will take a beating.  This is the reason why the new business model in the space of technology wearables will have to be shifted from betting on the success of next single product cycle to the sustainability of the long-term subscription and service revenue channel.

That being said, between the Blaze, Fitbit’s first smartwatch, and their smallest fitness wristband, the Alta, they represent 54% of Fitbit’s Q2 revenue, up from 47% in Q1, and 3.08 million units out of 5.7 million total devices sold.  As the Fitbit Premium and Fitstar subscription services are linked to Blaze and other wearables, new smart wearables only mean additional growth of service/subscription revenue. On that front, the market seems to be pleased with Fitbit’s selling over 3.08 million Alta and Blaze wearables in Q2, 54% up from the 2 million in Q1.

While the data on the subscription revenue share may yet to be available, we can only surmise that the much higher Alta and Blaze units sold suggests that the company just scratched the surface on recurring subscription revenue.  This is very positive evidence that Fitbit has made progress in shifting from the product sales to recurring subscription revenue.

If there is any negative, it has to be that Fibit just passed its first anniversary, albeit a difficult one. The stock has some time to wait to rebound since it is inevitably restricted by the vicious two-year “growing pain” of all IPOs.  Most IPOs have underperformed the market by, at least 20%, for the first two years due to the expiration of lock up options, resolution of information asymmetry, and private equity pulling out.

 

 

 

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