Please ensure Javascript is enabled for purposes of website accessibility

Fitbit Moves One Step Closer to Becoming a Legit Heathcare Player

By Rich Duprey - May 13, 2018 at 6:40PM

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

Its partnership with Google Cloud gives it a tool to leverage growth in digital healthcare.

As Fitbit (FIT) transitions from being a maker of fitness trackers to a developer of smartwatches, efforts toward becoming a leading digital health provider will become more important for the device maker.

The launch of the Versa smartwatch was the most successful product launch in Fitbit's history. So great were sales of the device that smartwatches are expected to become the primary source of revenue for the device maker in the second half of the year.

Yet part of that acceleration comes from the dramatic decline in fitness tracker sales, which it anticipates will plunge 19% in the second quarter. While smartwatch revenues nearly doubled to represent 30% of total sales, it wasn't nearly enough to offset the drop-off in tracker revenue, as total sales still fell 17% to $247.8 million.

The question is whether smartwatches can grow enough to more than make up for the loss of tracker revenue because Fitbit's goals for its digital healthcare initiatives virtually require that to happen.

Stethoscope on smartphone on top of a laptop

Fitbit's bid to break into healthcare could give it recurring revenue streams. Image source: Getty Images.

Taking the pulse of healthcare

Earlier this year, Fitbit acquired Twine Health, a small, HIPAA-compliant healthcare coaching start-up that provides health-related coaching for employees in corporate wellness programs. It connects them to coaches and doctors who craft plans to assist in establishing healthier lifestyles.

Managing the health of patients while they're away from a clinic or hospital has proved challenging for providers, as patients can develop more serious health issues if they fail to manage existing conditions like diabetes or hypertension. The Twine acquisition envisions a time when a hospital or clinic could run its software platform or integrate its technology with other vendors in the industry.

And to do that, Fitbit just announced an important partnership with Alphabet's (GOOG 2.68%) (GOOGL 2.63%) Google Cloud Healthcare API. It's also HIPAA-compliant and gives the device maker a place where it can store data to connect with the electronic medical records systems used by health providers -- and do so at scale.

Google is planning for when doctors and clinicians can instantaneously and securely collaborate on your healthcare issues. Its Cloud Healthcare API attempts to do that by providing the infrastructure that will leverage artificial intelligence and machine learning to hopefully improve patient outcomes.

By partnering with Google, Fitbit legitimizes its healthcare ambitions and lets it scale up quickly while integrating the system with its smartwatches. Fitbit is also moving over to Google's cloud platform, which it says will provide it with both cloud services and engineering resources that will free up capacity that it will be able to redeploy to healthcare.

A platform to fight from

Left unsaid was that it will also be better able to compete against Apple (AAPL 2.62%), which itself has announced an increased focus on healthcare. While there were rumors that the latest iteration of the Apple Watch would be poor, Apple recorded its best quarter ever and said its wearables segment saw revenue surge by nearly 50% from last year.

In contrast, Fitbit's sales are struggling, though Fitbit reiterated its belief that total revenues will come in at around $1.5 billion, which would be a 7% decline from 2017. That suggests they anticipate that falling tracker demand will eventually level off while smartwatch sales will continue to grow.

Coupled with its Twine acquisition, the partnership with Google, and its women's healthcare initiative, Fitbit is setting itself up to be a relevant player in the market that will generate recurring streams of revenue beyond device sales. While there remain questions about whether healthcare providers will take up Fitbit's software, and just how much consumers will trust their most personal information to the cloud -- regardless of assurances of security -- this is where the company begins to be a legitimate component of the healthcare system.

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Rich Duprey has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Alphabet (A and C shares), Apple, and Fitbit. The Motley Fool has the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. 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
$169.24 (2.62%) $4.32
Alphabet Inc. Stock Quote
Alphabet Inc.
GOOGL
$119.70 (2.63%) $3.07
Alphabet Inc. Stock Quote
Alphabet Inc.
GOOG
$120.65 (2.68%) $3.15

*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
373%
 
S&P 500 Returns
122%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/10/2022.

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.