Fitbit Inc: New Apple Deal Marks Danger for FIT Stock


On Tuesday, health insurer Aetna Inc (NYSE:AET) took a big, bold step toward the future of healthcare technology — it began to reimburse policyholders for the purchase of the Apple Inc. (NASDAQ:AAPL) watch.

As it turns out, the device has proven to help people live healthier lifestyles, and in turn, lower Aetna’s costs. That’s the theory anyway, and it’s a well-supported one. This is doubtlessly good news for AAPL; however, what does it mean for wearables competitor Fitbit Inc (NYSE:FIT)? Is this good or bad for Fitbit stock?

Fitbit Stock: New Apple Deal Marks Danger for FIT

For starters, this news isn’t a complete surprise.

Yours truly here floated the idea of an insurer-sponsored wearable back on Aug. 25. That suggestion put FIT in the spotlight as the potential solutions provider, but Apple beat Fitbit to the punch.

And that has got to be agonizing for owners of FIT stock. Don’t worry though. Although AAPL got the jump, Fitbit stock is still in the game.

Apple Scores Over FIT

In a statement from Aetna, the company explained:

“Beginning this fall, Aetna will make Apple Watch available to select large employers and individual customers during open enrollment season, and Aetna will be the first major health care company to subsidize a significant portion of the Apple Watch cost, offering monthly payroll deductions to make covering the remaining cost easier.”

To that end, Aetna has begun the development of apps that will remind users to take their medicine or refill their prescriptions.

The company didn’t give any indication of how many customers would be eligible for a free or discounted watch, but it did say it was also going to be providing an Apple watch to its 50,000 employees, again with the ultimate intent of keeping them healthy.

It’s an impressive, forward-thinking idea, imposing healthcare technology on users. It’s not a new one, however. Fitbit agreed in September to supply fitness trackers to 335,000 Target Corporation (NYSE:TGT) employees.

The difference? Target and its employees are funding their purchases. Aetna is the first major U.S. insurer to pick up the tab, turning it into a big win for Apple. And, if this becomes the new norm, it’s going to turn into an even bigger win for the consumer-tech company.

But where does this leave FIT, and what does it mean for Fitbit stock?

FIT Stock: Down, But Not Out

Calling a spade a spade, not only is Apple going to be selling tens of thousands of smartwatches in the foreseeable future, but also the decision by Aetna is a pseudo-endorsement of Apple as the maker of preferred health-related wearables.

Conversely, the fact that the lower-cost Fitbit was passed over by the insurer — despite the fact that it has been proven by Target’s employees as a mass-deployment wearable — raises a litany of questions in consumers and would-be FIT stock buyers’ heads. At the top of the list? Why would Aetna opt for novelty technology that also performs some basic health-related functions over a more cost-effective tool built from the ground up to monitor and improve health? It simply looks bad.

The answer is apps.

The Apple watch, when in sync with an iPhone, can provide several tools, all aimed at assisting users to live healthier. In so doing, one of the biggest flaws of the Fitbit wearable (and hurdle for FIT stock) comes to light. That is, at the end of the day it’s just an activity tracker, whereas Apple’s smart device is a true assistant that can improve outcomes even beyond monitoring.

It’s too soon to assume Fitbit stock is in deep danger though.

The silver lining for FIT in the midst of the announcement is that at the very least, the insurance industry has made it clear it will get behind such technologies. Even more encouraging for Fitbit stock is the fact that insurers will sponsor such technologies, even if those devices haven’t been approved via the Food and Drug Administration’s 510k process for bringing a medical device to the market.

None of FIT’s current products can compete with the Apple watch, but if it can build a device that’s more of an assistant, Fitbit does have a fighting chance at winning insurers’ blessings without needing the FDA’s.

Bottom Line for Fitbit Stock

I still stand by my Aug. 25 assessment:

“The idea of a wearable activity tracker isn’t a bad one. Fitbit has simply chosen the most difficult path to take — appealing to consumers in a sea of competition. The wiser path may be appealing to insurers.

It should also be noted such a shift would require a logistical overhaul. There are no strict consumer standards when it comes to wearable technology, while there are mountains of red tape to cut through to satisfy the healthcare industry.”

Now FIT has to add the displacement of AAPL to its chore list.

And, that may be the tallest order of all, not just because Apple has a head start, but because there are those wondering if Fitbit will even be around in the future to provide sales and service of its fitness trackers.

This may end up being an opportunity rather than a liability for FIT stock, but the company will have to move smart and move fast if it doesn’t want to fall further behind. I’m not optimistic.

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

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