With the successful IPO of fitness tracker maker Fitbit (FIT) a couple of weeks ago, the wearables industry has officially gone mainstream.
The company, which has already sold 21 million devices, is the dominant player in its space with an 85% market share. Fitness trackers are, in turn, the dominant form factor in the wearables space, accounting for 68% of all units sold according to the NPD group.
Growth is exponential. For FIT, sales totaled $745 million last year, up from $271 million in 2013. Fitbit is profitable too, earning nearly $132 million last year, which is terrific for a young firm. For the industry, spending on wearable devices is growing faster than any other segment of the consumer electronics marketplace according to the International Data Corporation.
Last year, shipments of wearables more than tripled over 2013 levels to reach a total of 21 million units.
Over the next three years, IDC expects the market to swell to 114 million units — nearly a $34 billion market, said IDC’s Jitesh Ubrani:
“The demand for basic wearables, those that do not run third party apps, has been absolutely astounding. Vendors like Fitbit and Xiaomi have helped propel the market with their sub-$100 bands, and IDC expects this momentum will continue throughout 2015.”
But moving forward, Ubrani is looking for smart wearables — those capable of running third party applications — to be the center of focus.
The battle between basic fitness bands and more advanced smart watches — of the type made by Apple (AAPL) and others — was discussed in a recent Adweek piece I tweeted on June 22. Currently, fitness trackers are winning (11% ownership among the population versus 3% for smartwatches). Awareness of both products is much higher, at 74% and 81% respectively, pointing to a coming surge of adoption.
Increasing adoption is about demonstrating a defined use. For FIT, it a combination of personal data gathering (lap times, etc.) and social signaling (the classic use of jewelry, “Look at me, I’m an athlete!”). For smart watches, with their higher price point and functionality overlap with ubiquitous smart phones, it’s just not there yet.
That could change. Eddie Hold, VP of connected intelligence at the NPD Group, thinks that once smart watches mature and add unique features — like the Dick Tracy-style video calls Apple is reportedly working on for the second-generation Apple Watch — they could become the dominant form factor in the wearables space.
It’ll be an uphill climb: Hold notes that half of Americans don’t even wear a watch.
For now, I’m continuing to look seriously at FIT. Most of these popular device stocks, like GoPro (GPRO), have had a strong initial run post-IPO even though all the value-focused pundits cluck-cluck. Ultimately these stocks run out of fuel and fall back to earth, but not for a few weeks. Fitbit will be modestly unique in that it is actually making money.
Research: Anthony Mirhaydari
Jon Markman writes a daily trading newsletter, Trader’s Advantage, and CounterPoint Options, a service geared towards helping individual traders make steady, consistent profits with the VIX. Check out his Top Stock for 2015 here.
