Fitbit Inc (FIT) stock has been one of the worst performing tech stocks of 2016, falling 40% thus far. Yet strangely, FIT has lost all this value, along with significant losses to end 2015, based purely on speculation.
Investors are terrified that Fitbit will become the next GoPro (GPRO), and that competition from the likes of Under Armour (UA) will prove too much to overcome.
Ironically, this unwarranted fear has caused Fitbit stock owners to miss what may be one of the most significant catalysts for FIT since its initial public offering.
But first, let’s get one thing out of the way, Under Armour is no threat to Fitbit. And furthermore, FIT is not going to become the next GPRO.
The market may be preparing for a doomsday scenario, but the fact that Fitbit continues to gain market share in the wearables space despite an influx of new competition (and was the big winner during the holiday season) proves it is far from wearing out its welcome.
Nevertheless, investors have shown an unwillingness to look at the facts in fear of these speculative concerns. For this very reason, investors missed a huge catalyst that could have a profound effect on the Fitbit stock price over the long term.
The Catalyst
Up until now, Fitbit has thrived in the basic wearables market only. It had no exposure to the much faster growing smart wearables market. Yet, even with the Apple (AAPL) Watch and Alphabet’s (GOOG, GOOGL) Android Wear entering the market, Fitbit still held a 22.2% market share of the entire wearables industry.
The problem is, sooner or later Fitbit will have to sacrifice that market share lead. By operating solely in the basic category, its addressable market is expected to grow by a total of just 45% from 2015 until 2019. Meanwhile, shipments in the smart wearables space are expected to surge from 24 million last year to 97.8 million in 2019, an increase of 300%.
That’s why it is such a big catalyst that Fitbit is penetrating the smart wearables market with the Blaze, a $200 smartwatch.
The Blaze does everything that other smart wearables are capable of: It has touchscreen, voice calling, text, GPS, etc. The difference is that Fitbit incorporates its own niche, adding on-screen workouts, continuous heart rate tracking, automatic heart rate tracking and a market best five-day battery life.
What Blaze Means for Fitbit Stock
Fitbit, Apple and Xiaomi control more than 15% of the wearables market, but besides those three companies, no other developer controls more than 5%. In other words, the wearables industry is very fragmented, and while Fitbit dominates (and will likely continue to dominate the basic wearables market), its future in the smart wearables space is far less certain.
Therefore, to be ultra conservative, let’s assume that FIT can gain a 3% share by 2019 in the smart segment. That would translate to nearly three million shipments at a $200 price point, thereby creating an extra $600 million in revenue over the next few years.
To put that in perspective, FIT was expected to create $1.8 billion in revenue throughout 2015. An extra $600 million in revenue would create growth of 33% by 2019, and that’s in addition to the continued growth that FIT is expected to achieve from its dominance in the basic wearables industry.
All things considered, 3% market share is very conservative, and the Blaze’s $200 price point is well below that of its smart competitors. As a result, $600 million is highly achievable, making the Blaze’s launch a huge catalyst for FIT.
And while the market completely ignored this catalyst in fear of Under Armour’s Healthkit launch, it just means that Fitbit stock price will reap the rewards later.
As of this writing, Brian Nichols was long FIT and AAPL stock.
