Fitbit makes wearable devices that help people track their daily activities, such as exercise and sleep. Of late, however, Fitbit has been the one submitting itself to close monitoring.
Prospective investors have been poring over the company’s financial information before the company’s launch on the New York Stock Exchange on June 18th. Its expected valuation of more than $4 billion would make it one of this year’s largest initial public offerings.
With its simple plastic bracelets the eight-year-old firm helped popularise the craze for quantifying exercise and other habits, by making it easy for users to track and upload their information to an online dashboard.
In the first quarter of 2015 Fitbit sold around a third of the 11.4m wearable devices shipped worldwide (excluding Apple Watches, for which sales figures are not reported).
Unlike many fast-growing technology firms, Fitbit is profitable. In 2014 it had revenues of around $745m and net income of $132m. There has been so much demand from prospective investors that days before the IPO the company raised the selling price of its shares by around a third, to $20.
But Fitbit has an uphill run ahead. It faces growing competition from a wide array of competitors, including specialised firms like Garmin and Jawbone, and deep-pocketed ones like Apple and Samsung.
The latter group have made expensive smartwatches that replicate all the functions of Fitbit devices but do much more, such as messaging. Other firms, like Xiaomi of China, are intent on pushing prices lower. Today over 40% of wearable devices cost less than $100, below the prices of Fitbit’s fancier products.
Why The Tech World Is Crazy About Wearables
Meanwhile, in the past month Jawbone has filed two lawsuits alleging that Fitbit stole some of its employees and intellectual property; it is asking for an injunction to stop Fitbit sales. Such spats are common among makers of gadgets, but the cases pose a risk to Fitbit that investors should bear in mind.
A bigger danger is that wearables are too new for their mainstream appeal to be assured. Ben Arnold of NPD Group, which studies the industry, says it is not yet clear whether most fitness fans want to wear a monitor on their wrists rather than on their feet or in their clothes—or indeed at all.
Nokia was early to the mobile-phone market and enjoyed a period of dominance, before its products were overtaken by multipurpose smartphones made by rivals. Similarly, Fitbit could be remembered as an early pioneer of wearables that lost out to rivals with more versatile gadgets.
In today’s bubbly market for tech shares, sceptics often ask if firms with no profits and scant revenues can really be worth so much. In Fitbit’s case, the vital signs are healthier, but the risks remain.