FIT Stock: Fitbit Unfazed by Apple Watch

Makers of fitness trackers were collectively dreading April 24, 2015 — the date that Apple (AAPL) would releasing the long-anticipated Apple Watch. Many analysts predicted Apple’s smartwatch would kill single-purpose fitness trackers the way tablets have devastated the e-reader market, and the company most clearly in the crosshairs was Fitbit (FIT).

Fitbit fends off Apple Watch
Source: Fitbit

While the Apple Watch went on to quickly dominate the smartwatch category, it failed to kill Fitbit. In fact, the newly public company — it held a successful IPO in June — had a stellar quarter, despite the fearsome competition.

In its Q2 earnings report, the company reported that revenue had more than tripled year-over-year on sales of 4.5 million fitness trackers (up from 1.7 million in Q2 2014).

In the wake of the Apple Watch, Fitbit’s position looks stronger than ever. The company has been a market leader since its inception in 2007 and it quickly rose to dominate sales of fitness trackers, despite competing against much larger companies like Nike (NKE), Garmin (GRMN) and more recently Samsung (SSNLF) and Microsoft (MSFT). Worldwide, Fitbit currently has a 34.2% share of worldwide fitness tracker sales, but in the U.S. it has a commanding 85% lead.

If any fitness tracker maker was at risk of being steamrolled by the Apple Watch, it was Fitbit.

Fitbit’s Health Scare

To be fair, Fitbit has had a challenging 18 months. In March of last year, it was forced to recall its flagship Fitbit Force tracker after the device caused rashes on the wrists of some users. Fitbit went for most of the year going up against long-time competitors like Garmin, along with newcomers like the Samsung Gear Fit (reviewed here), while only being able to sell the previous year’s devices.

Then things got ugly with Apple.

Despite the fact that Apple actually showed off a Fitbit tracker on stage at the iOS 8 event where it took the wraps off its HealthKit platform, Fitbit refused to integrate its data with Apple’s Health app. This move was likely in response to the pending Apple Watch, which was expected to have fitness tracking capabilities that would put it in competition with Fitbit.

By the time Fitbit finally announced a new line-up of fitness trackers last fall, Apple yanked all Fitbit products from Apple Stores and its online store. Losing the shelf space in Apple Stores was a blow to Fitbit, which had always been a favorite among iPhone buyers.

When the Apple Watch was officially unveiled, it was equipped to offer all the fitness tracking capabilities Fitbit devices did, including the heart rate sensor Fitbit had added to its new flagship devices. Worse, while the Apple Watch was more expensive than expected, the $349 base model Watch Sport targeted the active users market and was priced only $100 above Fitbit’s new Surge “fitness super watch.”

For that extra $100, Apple Watch users got the latest Apple must-have gadget, a full color display, a full suite of notifications (not just SMS text and phone calls like the Surge) and the ability to run apps — on top of a full complement of health and fitness tracking capabilities.

In the month leading up to the Apple Watch launch, Apple reportedly spent $38 million on TV ads alone in the U.S., pushing its new smartwatch. In contrast, Fitbit had a total marketing budget of $21.6 million — including TV ads, print ads and web promotion — for all of 2014.

And that’s not counting the months of speculation, teasing and media frenzy leading up to the Apple Watch launch.

Apple Watch Can’t Slow Down Fitbit

Fitbit definitely should have been worried.

The classic example of its plight is multipurpose tablets like the iPad oblitering single purpose e-readers to the point where the Amazon (AMZN) Kindle has essentially become a niche device. A smartwatch like the Apple Watch can go toe-to-toe with a Fitbit for fitness data, and do a heck of a lot more. And while seeing the writing on the wall and ducking out of the fitness tracker market may have been just a hiccup for Nike (which dumped its Fuel Band tracker last year), Fitbit has no other products to fall back on.

Whatever the reason, it’s clear that the one-two punch of the competing Apple Watch and being kicked out of Apple Stores has done absolutely nothing to slow Fitbit. And while smartwatch sales — led by the Apple Watch — exploded in 2015 (the category was up more than 450% year-over-year in Q2), the fitness wearable market also started 2015 with 200% growth.

The biggest threat to Fitbit may turn out not to be the multipurpose Apple Watch, but a new entrant in the single-purpose fitness tracker market. China’s Xiaomi released the Mi Band, a $15 wearable wrist band that tracks activity and sleep and goes 30 days on a charge. In contrast, the cheapest Fitbit device is the $60 Zip clip-on that tracks steps only. On the popularity of the Mi Band, Xiaomi went from a 0% share of the global activity tracker market to nearly 25% in Q1, instantly making it Fitbit’s biggest competitor.

To get a better idea of Fitbit’s future, don’t look at Apple Watch sales; instead, I’d be watching to see whether Xiaomi and its Mi Band manage to establish a foothold in the U.S., the market Fitbit has traditionally dominated.

As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.

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