Please ensure Javascript is enabled for purposes of website accessibility

4 Companies That Could Eat Fitbit's Lunch

By Leo Sun – Updated May 9, 2017 at 1:53PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Fitbit could continue ceding market share to aggressive rivals like Xiaomi, Apple, Garmin, and Samsung.

Once upon a time, Fitbit's (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.

Fitbit's Blaze fitness watch.

Fitbit's Blaze. Image source: Fitbit.

Xiaomi

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.

Apple

As Xiaomi lured away Fitbit's lower-end customers, Apple (AAPL 0.23%) 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).

The Apple Watch Series 2.

The Apple Watch Series 2. Image source: Apple.

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.

Garmin

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 (GRMN -0.53%), 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 high-end Fenix sports watches.

Garmin's high-end Fenix sports watches. Image source: Garmin.

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

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. 

Leo Sun has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Apple and Fitbit. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Fitbit, Inc. Stock Quote
Fitbit, Inc.
FIT
Apple Inc. Stock Quote
Apple Inc.
AAPL
$150.77 (0.23%) $0.34
Garmin Ltd. Stock Quote
Garmin Ltd.
GRMN
$82.33 (-0.53%) $0.44

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
329%
 
S&P 500 Returns
106%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 09/26/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.