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Will the New Apple Watch Crush Fitbit?

By Andrés Cardenal – Oct 13, 2016 at 2:22PM

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The Apple Watch Series 2 offers major improvements when it comes to fitness, this makes it a considerable threat to Fitbit.

Image source: Apple. 

Apple (AAPL 1.56%) has recently launched its newest smartwatch, the Apple Watch Series 2. This revamped Apple Watch model offers significant improvements when it comes to fitness, making it a major competitive threat to Fitbit (FIT).  

Apple Watch goes to the gym

Apple has substantially improved its fitness capabilities when it comes to the Apple Watch Series 2. To begin with, the device includes a built-in GPS, which was lacking in the original Apple Watch. Runners, which are a key market segment in fitness-oriented wearable devices, will clearly appreciate such improvement.

If you want to track your distance and speed via GPS with a first-generation Apple Watch, then you need to go running or walking with your smartphone, which is far from ideal. The original Apple Watch, as well as many devices from Fitbit and other manufacturers, can track distance by approximation without a GPS. These devices basically estimate speed and distance based on a pre-specified stride length, which is obviously not as precise or accurate as using a GPS, but can be reasonable enough to many users. 

Apple Watch Series 2 is also water-resistant up to 50 meters, and it even rejects the water from the speaker after being used under water. The new activity app allows swimmers to record workouts in both open water and a pool, and it includes sensors that count laps, average lap pace, and estimated calorie burn while swimming.

Apple and Nike (NKE 2.12%) have been working together for a long time in fitness-related products, and the Apple Watch Series 2 is taking that relationship to a new level. Apple has partnered with Nike to develop Apple Watch Nike+ edition, which comes with unique specially designed sports brands, exclusive Nike watch faces, and the Nike+ Run Club app, which provides run reminders, challenges from friends, and weather-related alerts, among other fitness-oriented features. Apple and Nike are two of the most powerful brands in the consumer sector, so the fact that they are joining forces in wearables is a red flag for competitors in the industry.

The most recent smartwatch from Apple also has huge improvements when it comes to the display, the device offers 1,000 nits of brightness, more than double the 450 nits of the first Apple Watch. According to Apple, this makes it much easier to see the screen outside on a sunny day.

Should investors in Fitbit be worried?

According to data from IDC, the top five vendors in the wearable devices industry shipped 22.5 million devices in the second quarter of 2016, an increase of 26% versus 17.8 million units in the same quarter last year. Fitbit is the clear leader in the industry, the company has a market share of 25.4%, and it shipped 5.7 million units during the second quarter, an annual increase of 29%.

As for Apple, the company comes in a third position behind Xiaomi, as it reportedly shipped 1.6 million devices in the second quarter, a big decline versus 3.6 million in the second quarter last year. On the other hand, the new Apple Watch was launched in September, so many consumers who want to buy an Apple Watch probably postponed their decision during the second quarter, and things could change substantially over the coming months. 

Importantly, consumer demand seems to be evolving lately. According to Jitesh Ubrani, senior research analyst for IDC Mobile Device Trackers: "Fitness is the low-hanging fruit for wearables. However, the market is evolving and we're starting to see consumers adopt new functionality, such as communication and mobile payments, while enterprises warm to wearables' productivity potential."

Fitbit has some important advantages when it comes to competing against Apple Watch. Fitbit devices have a battery life in the range of five to ten days, while the Apple Watch typically needs to be recharged every night. Fitbit also offers more convenient prices, with products ranging from $60 to $250. By comparison, the Apple Watch Series 1 starts at $269, and the Series 2 has a starting price of $369. Fitbit devices also work with all kinds of smartphones, but you need to pair the Apple Watch with an iPhone. This means that Fitbit will probably remain the best choice for consumers who are looking for basic fitness-tracking wristbands at affordable prices.

However, Apple is much stronger than Fitbit when it comes to areas such as design, brand power, and building a full ecosystem of services and applications around a smartwatch. If industry demand is transitioning, and consumers are demanding increasingly more functionalities from smartwatches, then Fitbit will be fighting an uphill battle against Apple.

Andrés Cardenal owns shares of Apple. The Motley Fool owns shares of and recommends Apple, Fitbit, and Nike. The Motley Fool has the following options: long January 2018 $90 calls on Apple and short January 2018 $95 calls on Apple. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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