Fitbit (NASDAQ: FIT) is taking multiple steps that will allow its products to greatly improve people’s health and maybe even save lives. As the Street realizes that FIT is becoming a medical device company whose products are extremely important to health insurers and consumers around the world, Fitbit stock price will rally tremendously.
On Oct. 16, Fitbit announced that it would partner with pharma giants Bristol-Myers Squibb (NYSE:BMY) and Pfizer (NYSE:PFE) on the “development of educational content and guidance ” to support people at increased risk for AFib.” The partnership will be launched once FIT’s software which the company says detects AFib, is approved by the FDA.
According to the Mayo Clinic, AFib can help signal early warning signs of strokes and heart problems. It allows doctors to identify those at risk of having strokes and heart problems, enabling them to take steps to prevent those conditions from occurring.
I have little doubt that the companies will charge for the software and the “educational content and guidance” they will provide. They will probably charge patients, on a monthly basis, for those deliverables.
In most cases, health insurers or a government will probably pick up the costs. As a result, the companies will be able to charge a fairly high amount for the service, probably something along the lines of $100 per patient per month.
If 1 million people worldwide use the system, and Fitbit gets half the revenue from it, that’s $600 million of annual revenue. Assuming an 80% gross margin, that translates into $400 million of gross profit. Considering that Fitbit stock now has a total market cap of $1 billion, that’s a huge haul. So by itself, the partnership should tremendously boost FIT stock in the longer term,
Fitbit Versus Apple
Many observers have said that Apple’s (NASDAQ:AAPL) Apple Watch also can detect AFib, but a recent study cast doubt on the device’s efficiency when it comes to accurately detecting the disorder.
Ironically funded by Apple, a study by Stanford University of the Apple Watch found “that the majority of warning notifications (of AFib) ended up being false alarms,” Tech Advisor reported earlier this month.
Since false positives waste a great deal of time and money and unnecessarily alarm patients, I don’t think that many healthcare professionals will be interested in using a device that has a false positive rate of over 50%.
The fact that Pfizer and Bristol-Myers chose to partner with FIT, instead of Apple, likely indicates that FIT’s AFib warning technology is much more accurate. Additionally, as I’ve pointed out previously, FIT is in a sweet spot when it comes to partnering with companies and countries.
FIT’s technology is likely way more reliable than those of its Chinese competitors, while its devices are way more affordable than Apples. Given those advantages. Fitbit is likely to develop many more lucrative healthcare and fitness partnerships, lifting FIT stock tremendously in the process.
FIT’s Upcoming Earnings
Fitbit is due to report its third-quarter results at the end of this month.
Since FIT is focusing more on its subscription healthcare initiatives than selling devices to consumers, the headline top and bottom lines probably won’t have a tremendous influence on Fitbit stock price.
Instead, investors and Wall Street will likely focus on the growth of the company’s Fitbit Health Solutions (FHS) business. FHS includes the company’s partnerships with 100 health plans, as of August, according to FierceHealthcare. It also includes the company’s upcoming personalized subscription service, Fitbit Premium, which launched last month.
Also included in FHS is the company’s deal to provide trackers to Singaporeans under a deal with Singapore’s government. FIT has said that the deal will be “material” to FHS’ revenue.
If there are signs that FHS’ revenue growth is meaningfully accelerating, more investors and analysts will start to realize that healthcare is really a huge opportunity for Fitbit. As a result, in such a scenario, Fitbit stock should climb in the wake of its results.
Additionally, in August Fitbit reported that it had completed clinical trials on its devices’ ability to detect sleep apnea, according to Wareable. Any indication that its devices will soon be approved to detect sleep apnea, and/or any indication that FIT could partner with more governments, would also be meaningfully positive for FIT stock.
The Bottom Line on Fitbit Stock
Because companies and governments are justifiably cautious when it comes to dealing with people’s health, rolling out healthcare initiatives often takes a long time. That’s certainly been the case for Fitbit in the past.
Going forward, it may still take some time for FIT’s current efforts to turn into huge dollars and for FIT stock to reflect its huge potential in the healthcare space.
Still, there’s little doubt that FIT’s deal with Pfizer and Bristol-Myers will eventually yield tremendous profits for FIT, lifting Fitbit stock a great deal in the process. There’s also an excellent chance that FIT will sign deals with dozens of new health insurance and corporate partners over the next couple of years.
Finally, there’s a good chance that it could partner with additional countries and turn sleep apnea detection into a huge profit center.
As a result, longer-term, patient investors should buy Fitbit stock at these levels.
As of this writing, the author owned shares of Fitbit stock.