By all accounts Fitbit (FIT) products are thriving this holiday season, which thereby pushed FIT stock more than 14% higher in the week that followed Black Friday.
For those who have followed Fitbit’s rise, this should be no shock, as the company continues to maintain a leading market share of the wearables industry with mind-boggling growth.
What Fitbit has proven is that it can not only survive, but thrive long-term. Therefore, even with using conservative estimates, investors should know that Fitbit stock is a must-have on your Christmas wish list.
What IDC Had to say
The latest data that’s pushing Fitbit stock higher comes from IDC. In that report, shipment volume for the total wearables market rose nearly 200% year-over-year to 21 million units in the third quarter.
More importantly, Fitbit continues to maintain its market share lead of 22.2% despite significant growth by the Apple (AAPL) Watch and Xiaomi products in China. Fitbit’s total third-quarter shipments accounted to 4.7 million, up 101% from its 2.3 million tally last year.
Granted, Fitbit did lose market share in the wearables space, down from 32.8% last year, but not to the degree that many expected. Investors must keep in mind that Xiaomi was just getting started this time last year, and the Apple Watch had not even launched yet.
Furthermore, the wearables market as a whole is separated into basic and smart segments. The latter is where the most explosive growth occurs and is expected to occur in the future. This year, approximately 68.5% of wearable shipments come from basics, but by 2019 that percentage will be reduced to just 43.6%.
So Why Own Fitbit Stock?
So if smart wearables are creating most of the industry’s growth and Fitbit is a basic wearables company, then why own Fitbit stock?
The reason lies in the fact that even basic wearables will grow at a tremendous rate. In total, the wearables market will grow from 76.1 million this year to 173.4 million in just four years.
| Year | Total Shipments | Basic market share | Implied Shipments for Basic |
| 2015 | 76.1 million | 68.5% | 52.1 million |
| 2019 | 173.4 million | 43.6% | 75.6 million |
Fitbit is responsible for about half of the entire basic wearables market, and really has no legitimate competition in that space. Of the five companies that own at least 3% market share in the wearables industry, only two operate in the basic arena, Fitbit and Garmin (GRMN). According to IDC, Garmin’s Q3 shipments totaled just 900,000, meaning it is not really a legitimate threat to Fitbit with a 4.1% market share.
That said, 2015 was the one year where Fitbit faced real turmoil, with the Apple Watch launch and several companies adopting Android Wear. However, it has weathered that storm well, and is proving itself to be a hot commodity this holiday season. In retrospect, FIT should be able to maintain a 50% market share of the basic industry through 2019, selling 37.5 million devices.
In 2015 alone, the average selling price (ASP) for Fitbit devices has risen 31% to $85.75. For the sake of argument, let’s assume that FIT can get its ASP to $100 by 2019, increasing 16.6% from 2015.
Keep in mind, FIT still has the opportunity to move into the smart wearables market by adopting Android Wear, something that is very possible in the years to come. That would almost certainly assure an ASP over $100.
Therefore, with 37.5 million devices at $100, FIT could very well reach revenue of $3.75 billion in 2019. That represents growth of 150% over a four year span. Not to mention, FIT’s operating margin could very well surge, as 20% is very low for a hardware company. Hence, profits could grow faster than revenue.
Bottom Line for FIT Stock
FIT stock at 29 times next year’s earnings looks like the bargain of a lifetime given this degree of potential growth.
What makes Fitbit stock even more appealing is that these figures are rather conservative, completely discounting the likelihood of FIT entering the smart wearables market within the next couple years.
Collectively, this is why investors should be bullish Fitbit stock both short- and long-term, as its prospects really are bullish for the foreseeable future.
As of this writing, Brian Nichols owns shares of Fitbit stock.
