Once upon a time, Fitbit's (NYSE:FIT) main competitor in the fitness tracker market was Jawbone. But that market has become much more crowded over the past few years, and Fitbit is falling behind -- analysts expect its sales to fall 26% this year, compared to 17% growth last year. Its bottom line is expected to remain deep in the red for the next two years.
Research firm IDC recently reported that Fitbit's global share of the wearables market plunged from 29% to 19.2% between the fourth quarters of 2015 and 2016, as its shipments fell 23% annually to 6.5 million units. That decline was attributed to its major rivals splitting up the rest of the wearables market. Let's check out the four most dangerous players on that list.
Chinese smartphone maker Xiaomi's Mi Band, which offered similar features as the original Fitbit Flex for about $15, gained ground quickly in China and several other markets. Its successor, the Mi Band 2, added a heart rate tracker, a screen, and a 30-day battery life for just $25.
Both devices are bargains compared to Fitbit's $100 Flex 2, which lasts just a few days on a single charge and lacks a screen and heart rate sensor. That's probably why Xiaomi's total shipments nearly doubled year-over-year to 5.2 million during the fourth quarter, and why its market share rose over six percentage points to 15.2%. It also explains why Fitbit's revenue in the Asia-Pacific region slumped 26% last year.
As Xiaomi lured away Fitbit's lower-end customers, Apple (NASDAQ:AAPL) won over its higher-end customers with the Apple Watch -- which offers many more apps and features than Fitbit's devices. IDC reports that Apple's market share fell from 14.1% to 13.6% between the fourth quarters of 2015 and 2016, but its total shipments rose 13% to 4.6 million units (due to the growing size of the overall market).
That growth was mainly attributed to Apple's introduction of the Apple Watch Series 2 last September. The second-gen model added full water resistance, a GPS, a brighter screen, and a bigger battery. The device's growing app ecosystem also helps the device evolve for other purposes -- a strength which Fitbit still notably lacks. Fitbit tried to counter the Apple Watch with the Fitbit Blaze, but many reviewers mocked the device's blocky appearance and cheap build quality.
Fitbit then thought it could carve out a niche between cheap fitness trackers and high-end smartwatches with "sports performance" devices like the Charge 2, but it ran straight into Garmin (NASDAQ:GRMN), which has been diversifying away from its fading automotive GPS business with fitness trackers at multiple price tiers -- ranging from its low-end Vivoactive fitness trackers to its high-end Fenix sport watches.
Garmin's market share dipped from 7.6% to 6.2% during the fourth quarter, and its shipments slipped 4.5% to 2.1 million -- indicating that it faces the same pressures in the low-end and high-end markets as Fitbit.
However, IDC reports that Garmin has been faring well with its "dedicated fitness audience" with its GPS-enabled trackers, and that many of its users "graduate from simpler fitness trackers to more sophisticated and expensive sport watches." That upmarket shift lifted Garmin's average selling price from $200 to $258 in the fourth quarter.
Samsung (NASDAQOTH: SSNLF) controlled just 5.6% of the wearables market during the fourth quarter, but that was still higher than its 4.7% share a year earlier. Its total shipments rose 38% to 1.9 million units during that period, thanks to the launches of its new Gear S3 Classic and Gear 3 Frontier smartwatches.
Samsung's smartwatches are only compatible with its own smartphones, and many of its newer devices offer stand-alone LTE connectivity -- a feature which most other devices lack. These two factors clearly limit Samsung's overall market, but Samsung smartphone users might consider buying those devices -- or lower-end devices like the Gear Fit 2 -- for their fitness tracking needs.
The key takeaway
In addition to these four challengers, other smaller wearable makers -- which together account for the remaining 40% of the market -- could make life tough for Fitbit. Therefore, Fitbit investors should be wary of the stock's recent post-earnings bounce, since the company still clearly lacks a meaningful moat to fend off all these aggressive rivals.