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The Fitbit Inc IPO: Is This Red Hot Fitness Tech Company Worth an Investment?

By Bradley Seth McNew – Jun 19, 2015 at 7:35AM

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After increasing both the range and deal size, Fitbit still managed to price its initial public offering above expectations at $20 per share. Does it still have room to run?

In a move that highlights just how popular wearable fitness devices have become, Fitbit (FIT), one of the original makers of fitness tracking hardware, priced its initial public offering this week above the range at $20 per share, valuing the eight year old company at over $4 billion. Strong demand for Fitbit shares flowed through into its first day of trading with the stock opening at $30.40, up an additional 52% above the offer price.

Is wearable fitness just a fad or a viable long-term industry? Here is what you need to know about the Fitbit IPO and the future growth this company, and investors, might expect.

The products
Fitbit started in 2007 making simple wearables that tracked little more than steps, similar to traditional pedometers worn on your waist. The newer, more advanced models, mostly wristbands, now track sleep habits, calories, heart rate, distance traveled, route taken via GPS, and more. 

The Fitbit Charge that also monitors your heart rate. Source: Fitbit

Fitbit has also pushed into the software side, offering an all-in-one smartphone and desktop app that allows users to monitor and track their results to reach their health goals.

"We pioneered the connected health and fitness market starting in 2007, and since then we have grown into a leading global health and fitness brand," the IPO filing states.

The offering itself originally called for 29.85 million shares, offered between $14 and $16. However, strong demand allowed the company to upsize the deal to 34.5 million shares, while also increasing the range to $17 to $19.

And that still wasn't enough -- the company upsized the deal a second time to 36.6 million shares, the company raised $731.5 million, making it the third largest U.S. IPO this year. The offering also includes about 14.2 million shares being sold by existing Fitbit stakeholders. The stock closed out the first day of trading at $29.68, lifting the company to a $6.1 billion valuation.

Fitbit financials

($ in millions) 2011 2012 2013 2014
Revenue  $14.5 $76.4 $271.1 $745.4
EBITDA (4.0) (2.4) 79.0 191.0
Net Income (loss) (4.3) (4.2) (51.6) 131.8

As you can see in the chart above, Fitbit offered a rare treat in the world of tech IPOs with solid growth and profitability. The company says it has sold more than 20 million devices so far, and growth seems to be accelerating: The first quarter of 2015 looked especially solid as the company posted revenue of $336.8 million, more than triple the year-ago quarter. For the full-year, the company is on track to double its 2014 revenue and will likely do the same on the bottom line after posting $48 million of net income for the last quarter.

The competition
Fitbit is certainly not the only player in this space. A slew of competitors offering nearly identical products, including Garmin and Jawbone (which recently sued Fitbit, claiming the company stole ideas by hiring Jawbone employees). Fitbit is also seeing new pressure from major sports and fitness companies like Under Armour.

Even tech and software companies such as Apple and Google have joined the fray. The Apple Watch has health-tracking features like heart-rate monitoring, and Google Fit seeks to be an all-encompassing fitness tracking platform.

One more new and potentially serious competitor is Chinese hardware maker Xiaomi, which has gained traction lately with a huge boost in smartphone sales in China. Xiaomi has come out with its own device for just $15. This low-price offering has not made a splash outside China yet, but it only just started selling these trackers abroad and has already recorded 2.8 million units shipped in the first quarter of this year. 

The future
The market is only getting bigger, with analysts from Juniper Research predicting that the fitness tracker market will triple in the next three years. Will Fitbit be the one to lead the charge?

Another challenge for the company is a lack of product diversification. Fitbit currently relies solely on its hardware, and there are already over 50,000 fitness or health-tracking smartphone apps out there. Compare that with a company such as Under Armour, which not only has an upcoming wristband but multiple fitness apps and a massive user network.

Still, Fitbit is the market leader, and that means nearly all of these tracking apps and services -- including the ones Under Armour owns -- are compatible with Fitbit. This flexibility could help the company continue to dominate the hardware side of the industry. 

Fitbit currently enjoys a 68% market share by sales, according to its IPO filing. That is especially significant in a market that could be three times as large by 2018. Even if competitors like Xiaomi and Under Armour focus their efforts in this space, Fitbit is in a formidable position to maintain its growth and profitability which should benefit investors buying into the deal. 

Bradley Seth McNew owns shares of Apple. The Motley Fool recommends Apple, Google (A shares), Google (C shares), and Under Armour. The Motley Fool owns shares of Apple, Google (A shares), Google (C shares), and Under Armour. 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.

Stocks Mentioned

Fitbit Stock Quote
Alphabet Stock Quote
$92.83 (-0.94%) $0.88
Apple Stock Quote
$142.16 (-0.34%) $0.49
Under Armour Stock Quote
Under Armour
$9.53 (-0.73%) $0.07
Garmin Stock Quote
$95.03 (-0.61%) $0.58
Alphabet Stock Quote
$93.07 (-0.94%) $0.88

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