To say the public markets haven't been kind to Fitbit (NYSE:FIT) would be a gross understatement. Since it arrived on the public market in 2015 to much fanfare, the fitness tracking company hasn't been able to catch a break. Fitbit now trades hands at less than $6 per share, more than 70% below its IPO price.

While it's true Fitbit hasn't done itself any favors with mediocre execution, its biggest problem lies in the nature of its core business. Fitness tracking has struggled with slowing demand, capable substitutes, and a commoditized market. So the high valuation the company was afforded at its IPO quickly evaporated.

To reverse its performance, Fitbit needs to move beyond simply fitness tracking. Its newest pilot program could be the solution it's looking for.

Two men jogging in the park.

Image source: Getty Images.

Moving beyond fitness tracking to health solutions

In a recent interview at the Consumer Electronics Show, CEO James Park emphasized his commitment to growing non-device revenue. Last year, Fitbit debuted its Ionic smartwatch powered by its operating system, FitbitOS. This affords Fitbit more revenue sources like Fitbit Coach, the $7.99-per-month personal training app.

However, the most intriguing opportunity is the transition to becoming a solutions-based company in the health space. During CES, UnitedHealthcare announced a partnership with diabetes management company DexCom and an unnamed hardware company for a pilot tracking program. It didn't take long for Fitbit to announce it was that unnamed company. In the same interview, Park commented on the broader opportunity in healthcare:

It's a little early, but our goal as a company is not just to sell devices or software, but also to drive actual health outcomes and therefore reduce healthcare costs. So one of the more exciting potentials is seeing if there's a role for us to play in taking some of the risk upfront and sharing in the cost savings...

We're starting to see some indication that that could happen. If you look at diabetes, that's $322 billion in costs to the U.S. healthcare system. Reducing that by 10% means $32 billion that could be distributed across players in the ecosystem that helped make that happen.

Fitbit has an opportunity most hardware producers don't

Fitbit isn't alone in its desire to broaden beyond a hardware business model to a subscription-based one. When GoPro filed for its IPO, the company branded itself as a media company and benefited from stretched valuations. Even the most successful consumer hardware company, Apple, is focusing on repeat software and services revenue, with CEO Tim Cook announcing an audacious goal of doubling its revenue in three years.

Adding recurrent revenue has been a mixed bag for most hardware companies: Apple grew revenue in its services division by 23% last fiscal year while GoPro has reversed from its social media focus and appears to be prepping for a sale. Unlike Apple and GoPro, however, Fitbit's prospects are greatly aided by both an existing and growing market alongside the life-critical nature of this disease. In the end, it's likely the winners and losers in this market will be shaped more by suppliers than end consumers. While it's important to note that this is only a pilot project and faces considerable odds as far as monetization is concerned, it's wise to closely watch announcements from Fitbit and healthcare providers in this spaces.


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