Current market position - the company's market share, seasonality and other factors

So, FitBit makes smart trackers that track steps, calories burned, floors climbed, they also have heart rate bracelets and sports watches that have additional features. The company started as a startup in 2007 in San Francisco, California. The first product was a "smart" pedometer that could calculate the distance traveled, how much the user slept (you needed a special cuff on your arm). The kit included a charger that also connected to a computer via USB and synchronized all your data. The prototypes of the device, which was called the FitBit Tracker, were ready in mid-2008, at the same time the founders of the company began to actively draw attention to their product, in particular, speaking at industry conferences, where they received positive feedback.

In 2007-2008, the market for smart pedometers was just emerging, there were individual players on it, but FitBit was one of the first to convince investors that the startup would turn into a serious business. It took several years, but by October 2011 the company showed an improved version of its tracker, it called it the FitBit Ultra.

This product in many ways anticipated and predetermined the smart tracker market, for example, Withings, which was eventually bought by Nokia, completely copied its devices from FitBit products. FitBit set the standard for first-generation trackers, showing what they should be. Some companies still do not have the floor count or added this feature quite recently, FitBit has had it since 2011.

It makes little sense to list all the company's products, I will only note that it initially focused not on athletes, but on people involved in fitness or who want to lose weight and keep fit. FitBit's sales were boosted by the appearance of the first tracker on the shelves of the Apple Store in the US, which was a turning point for the company and determined further sales.

FitBit's first wristband was the Flex, which only appeared in 2013, when Jawbone and its peers had already flooded the market.

It's important to understand that FitBit was in no rush to hit the market with its wristband and was probing the waters very carefully. For a small company with limited resources, an unsuccessful product could mean a complete collapse, so FitBit always assessed its prospects with a great deal of pessimism, playing it safe. Perhaps this is one of the features of the founders of the company, even in the best of times, before the appearance of the Apple Watch, they assessed their successes very modestly and were in no hurry to rejoice at the results achieved. When you look at FitBit's product line, you'll find that the start-up pioneering tracker company is by no means in a rush to be the first in new product categories, it's taking a cautious, measured stance. And this was true, both five years ago and today.

Such a cautious position led to the fact that in the second half of 2014 the company refused to integrate Apple HealthKit into its products as a platform that complements their software. The result was not long in coming, in November 2014, Apple withdrew all Fitbit trackers from sale, which many considered the beginning of the end of the company. But nothing bad happened, its sales only grew, the peak of the company's popularity came in the Christmas season of 2015.

Trackers have a pronounced seasonality, which at first glance is inexplicable - they are best sold in December. Moreover, for FitBit, the volume of December sales in different years reached 36, 44 and even 52% of annual sales! The explanation for this should be sought in the sales structure, since the company is 70% dependent on the US market, which makes the main contribution. December sales show that FitBit trackers were one of the preferred Christmas gifts in families, parents gave them to children, spouses gave them to each other. Moreover, in 2014-2015 there was also a peak in the popularity of this type of device, and there was virtually no competition from smartwatches. Today, these factors are no longer so pronounced, and seasonality persists, but December has ceased to be such a delicious period of sales.

Let's take a look at IDC's wearables market estimates, latest numbers for the third quarter of 2016.

Please note that FitBit has been and remains the market leader in unit terms, even the introduction of the Apple Watch could not dislodge it from this position in the third quarter of 2015. Although many predicted that this would happen. In terms of money, FitBit is inferior in sales to both Apple and Samsung, since the average price of a device sold differs significantly. On average, a Fitbit tracker is positioned in the range of $100 to $150, although there are more expensive sports watches, as well as inexpensive trackers. A significant share of Xiaomi is explained by the cheapness of MiBand, the difference in cost with FitBit, which is similar in hardware, is about five times! Hence the high share of Xiaomi in sales, primarily due to China, to a lesser extent due to other countries.

In 2016, FitBit officially sold its devices in 65 countries around the world, the number of partners and points of sale was about 55,000. At the same time, the company focuses on increasing its own sales through the online store, one of the company's strategic goals is to reduce the share of sales in the United States due to foreign markets and growth in them. The same Xiaomi does not have such an extensive sales network, as well as support, which is expressed in the cost of the product (it is not a pity to throw it away if it breaks down and buy a new one). Another fundamental difference is that in Xiaomi there is no social platform for competing with other users, analyzing your activity data, while in FitBit this is the cornerstone of the whole strategy. For those who are buying a pedometer for the first time, this is not a fundamental difference, but for FitBit users it is an additional anchor that ties people to the company.

Fitbit does not have its own production, the company relies entirely on a number of factories in China, which leads to an increase in the production cycle, the purchase of materials. It is impossible to consider such a business model as having flaws; most of the players in this market are built in a similar way. But this does not add flexibility to the company.

Unlike all players in the wearable electronics market, FitBit pioneered the B2B segment by negotiating with insurance companies that work with large corporations. The use of FitBit trackers in such corporations leads to a decrease in the cost of insurance, the companies themselves are interested in buying devices and having employees wear them daily. Receiving additional information about their activity, insurers can predict their risks and adjust payments in one direction or another. FitBit's approach fits nicely with various corporate wellness programs where companies try to make their employees healthier because it's cheaper for them in the long run. No other player in this market is so active in this area, FitBit has a separate division responsible for this direction.

Having briefly and framed described how the company appeared, in what areas it is strong today, let's dwell on recent events and the fall in share prices, why this is happening and what investors think.

Bad year 2016 - expectation of new products and their absence

The company entered the IPO on June 18, 2015, the symbol is "FIT". The initial placement took place for $358 million. Almost from the very beginning, the company's shares went down, private investors, who make up the bulk of those who invest in FitBit, did not believe in the company's prospects. Negative expectations were fueled by the fact that the Apple Watch was supposed to appear on the market, which theoretically could “kill” any sales of competitors. Investors believed in Apple but did not believe in other companies in the field and expected a revolution from this player.

An important caveat about investors, initially before the IPO, funds invested in the company, there were several rounds of investments totaling $66 million. The market value of FitBit today is about $1.6 billion. The expectations of private investors are akin to beliefs, they often do not understand how the market works, what companies are, and they play stocks akin to how they do it in a casino, choosing favorites or "safe" options. And after that they start rooting for their team, which is understandable. Private investors have such a favorite as Apple, while FitBit is incomprehensible to them, informationally closed, and they simply do not see the ways in which the company develops.They perceive FitBit as a manufacturer of trackers and smartwatches, which it has not been since recently. To reflect these changes, CEO James Park even said in late 2016 that the company is going through a transformation from an electronics manufacturer to a digital healthcare company. To some extent, this is in tune with what Herman Klimenko is trying to do in Runet on the part of the state, to digitize our healthcare and get benefits for the country from this. In the West, this topic is popular, but strong fragmentation, the lack of common standards - all together suggests that there is no single leader. FitBit is one of the hidden leaders in this market, it is a huge underwater part of the iceberg that is not visible from the outside. Interaction with insurance companies is only part of the story, the approach itself is much broader and more interesting.

For private investors, FitBit was a clear miss during these years, everyone who expected the revolution lost their money, this can be clearly seen on the chart.

Is everything gone? A lot is written down in FitBit's failures, for example, the company still has not equipped all of its bracelets, except for one, with water protection, you can not swim in them. Another point that worries investors is sales during the Christmas period, there are negative expectations that they will be low, but there have been no official figures yet.

Against such expectations, any information acts as a trigger. For example, Amazon shared their tracker sales and sent out a press release on December 27th. A version of the press release appeared on that did not include a single FitBit product on the bestseller list, which immediately caused a reaction, one of the CFRA analysts Scott Kesler cited this data, and he was immediately quoted. The next day, FitBit's stock was down 5%. At the same time, there was a different version of the press release on the Amazon website, in which all the first positions were occupied by products from FitBit, a draft was sent to, and not the final document. The negative expectations that existed in the market were unexpectedly "confirmed" by the reports, which triggered a reaction. The repeated clarification no longer played a role, many had the information in their heads that FitBit was falling in sales.

This information was piled on by rumors that the company has stopped paying partners for the production of devices, it has large inventories, and similar nonsense that vanishes like smoke if you open the company's latest financial report. It lists stock balances, resources held by the company, and its liability to third parties. In one quarter, it is impossible to create a situation that would lead to a fundamental change in what is indicated in quarterly reports, so market speculation is worth checking with open financial data that public companies have. In my opinion, someone is purposefully trying to undervalue FitBit shares in order to buy them cheaply and possibly make a profit in the future. Even in a short period of exchange rate fluctuations, they amounted to about 8%, it was possible to play on them, but I think that the game is somewhat larger.

Digital Health, Mobile Payments, and the Future of FitBit

FitBit's financials show that the company is in good shape, making money and continuing to grow. But in terms of sales growth, not everything is perfect for her, in fact, the company is entering a period of market saturation and sales stagnation.

A 2 percent increase in what has always been a high season for FitBit is alarming. But despite this, FitBit sells more than 20 million devices a year, remains number one in this market and has a loyal user base. They sell not only devices, but also a service.

Now notice how R&D costs change.

Against the background of stable, slightly growing sales, FitBit is sharply increasing its R&D spending, which means the release of new products and new niches. This is the most interesting thing in the history of the company, since neither investors nor users are practically looking in this direction.

Let's evaluate the visible part of what the company does. The first and foremost is, of course, services for current users of trackers. In March 2015, FitBit acquires app/service maker FitStar, which creates personalized workouts for people. The cost of the acquisition is $17.8 million (in cash and shares).

The service has its own website, as well as apps for Android/iOS.

These are video tutorials on how to do different exercises and can be displayed on your smartphone. Judging by App Annie's data, the total number of downloads of the application is about one and a half million on two platforms. At $39 a year, even though the actual number of paying users could be between 7% and 9%, that's a significant portion of FitBit's revenue. I have no doubt that software and device improvements will happen in sync, that is, FitBit will create a product that resembles MOOV Now.

In 2016, for an unknown amount, a startup Coin was bought, which has experience in mobile payments. In May 2016, the top management of the company publicly announced that mobile payments will not appear in FitBit products in less than a year.

In December 2016, the company acquired Pebble, one of the pioneers of the smartwatch market, a landmark company for $40 million. Product support will remain during 2017, the entire Pebble team is not needed, only the people who developed the OS, applications and services remain. In January 2017, the Romanian company Vestor Watch was bought, the amount is unknown, but they have interesting developments in smart watches, and they are similar to what Pebble did.

Earlier, the company tried to buy Jawbone, but the parties did not agree on the amount, and Jawbone, amid chronic failures in the market, also tried to sue FitBit, however, without much success.

If you look at those companies that have acquired in FitBit, then there is a completely understandable picture of the world, what exactly in terms of the product they are going to create. Black and white or color eINK screen, which instantly provides a long time for smartwatches. Own OS, similar to Pebble OS, that is, there are already software developments and a large number of existing applications, as well as the developers themselves. Mobile payments built into such watches. This is again just the tip of the iceberg, as we look at the smartwatch market, in isolation from services.

For FitBit, building its first smartwatch is not only an extension of its consumer product line, such a watch is important for the B2B segment, but even more so for digital healthcare. Today, wristbands cannot be approved by the government in the US or other countries, and they are not licensed as medical devices with a certain measurement accuracy. However, studies show that pedometers and smartwatches can predict the occurrence of certain diseases in people, in particular, a recent study conducted at Stanford confirms this.

This article outlines how anyone with Internet access and a little time and inclination can find information about a company and try to understand where it is going and what lies ahead. It will take hours for some, days for others, but you can form your own opinion. For those who play on the stock exchange, this is just the minimum necessary skill, of course, if you do not perceive the purchase and sale of shares as a kind of roulette. Of course, if we compare such an analysis with serious research, it will seem naive, but often nothing more is needed. I don't know any research company or analyst that does a thorough analysis for each company, in most cases they limit themselves to such a superficial assessment and then issue their recommendations for most market players. Otherwise, they simply do not have enough time to do their job. For you, this means that you can do all the same, but come to conclusions on your own, consider the potential in companies and, perhaps, invest your money profitably.