Under Armour (UA) launched its suite of connected fitness products, named the UA HealthBox platform, this week. The HealthBox includes data-tracking running shoes, wireless headphones and the UA Band fitness tracker.
Fitbit (FIT) stock has since dropped more than 20%, as FIT investors illustrate clear concern that Under Armour’s $180 UA Band could cause pressure on Fitbit’s own products.
And while Under Armour is likely to experience some success with its HealthBox, fact is that FIT investors should not worry — at all.
Fitbit has Overcome a Lot
At the time of Fitbit’s IPO in June of 2015, analysts predicted that the company would create revenue of $1.4 billion for the full-year.
However, thanks to very strong performance in the second and third quarters, that outlook has risen by nearly 30% to $1.8 billion, with Fitbit beating expectations and raising its outlook in each period.
Furthermore, Fitbit is on pace for a tremendous fourth quarter and 2016 after its mobile application jumped 25 spots to the top of the App Store on Christmas morning, implying a lot of Fitbit gifts during the holidays. This supported the fact that Google searches for the Fitbit brand were up 60% year-over-year during the week of New Year’s.
What makes this performance so impressive is that with all Fitbit has had to overcome over the last year, it ultimately ended 2015 as the leader in the wearables space with a market share of 22%.
In 2015 alone, there have been half a dozen companies to launch smart wearables using Alphabet‘s (GOOG, GOOGL) Android Wear operating system. And then, of course, there is the Apple (AAPL) Watch launch earlier this year.
Given that FIT products lack smart technology, it certainly seemed that the launch of Android Wear and the Apple Watch would hurt Fitbit unit sales. However, that has not been the case. Fitbit has beat expectations and raised guidance in each of its last two quarters, and is expected to do the same in Q4.
Fitbit Will Overcome UA Stock Too
With all things considered, if Fitbit was able to overcome and thrive in the last year, what makes investors think that Under Armour’s HealthBox and UA Band launch will be any different?
Based on Fitbit stock’s reaction to Under Armour’s news, investors are worried that Fitbit could lose market share and/or face pricing pressure. After all, UA operates in the fitness world and presents a different challenge than the likes of Android Wear and Apple.
While true, Fitbit stock has overcome a fitness-based retailer in the wearables space too. Nike (NKE) is the much larger version of Under Armour, and its Fuelband and Sportwatch wearables have been in the market for quite some time. If FIT sales continues to surge despite having Nike as a competitor, then why would investors all of a sudden fear Under Armour and its UA Band so much — to the tune of a 20% FIT stock loss?
True, UA stock is likely to have some success with its HealthBox, and the UA Band might be a top seller. However, the wearables space is growing very fast, from 76 million total units last year to 173.4 million in 2019. As a result, there is plenty of room for Under Armour to grow in this space, and to be successful.
The fact that Fitbit stock investors automatically assume there is only room for one or the other, and that an unproven Under Armour will reign superior, is unjust.
FIT stock losses are a value opportunity, whereas expectations are sky high for an unproven Under Armour that has no track record of success in technology or wearables.
As of this writing, Brian Nichols owns shares of FIT and AAPL.
