On July 24, I had a conversation with Manish Gupta, chief marketing officer of a private company called Liaison Technologies, which he describes as a "cloud healthcare integration" provider, offering big data solutions for metrics gathered by wearable health trackers and the healthcare industry professionals who would like to use that data.
Our conversation turned to the future of this wearable health tracker space and which company has the most to gain from it. Gupta's answer to both: much more specific uses of biometric data, and most likely Fitbit (NYSE:FIT).
The start of a healthcare revolution
Gupta was quick to tell me that there's a healthcare revolution coming in the next few years. Infrequent health screenings and data gathered by doctors with expensive machines are going to go away. The biggest change coming to healthcare is going to be constant data gathered by inexpensive devices.
Through wearables such as Fitbit trackers, this is possible for a very low cost. Right now, wearables are simple. Even at the higher end of the market, they gather only step count, heart rate, and other basic data points. Gupta believes the technology will get much more oriented toward total health.
What if we can easily track cortisol, vitamin, and mineral replenishment, water levels, and so on? That's when things really get interesting. Through the use of wearable trackers, Gupta says healthcare professionals will be able to get a much more in-depth view of what's happening with an individual's daily life that might be affecting that person's overall health.
Insurance providers are going to start taking a lot more interest in what's happening with individuals' bodies on a daily, hourly, and even minute-by-minute perspective. Just as with car insurance providers that started to offer lower rates for safer drivers who were willing to keep a monitor in their car recording their constant driving abilities, that's what health-insurance providers will be able do through these wearables, which may help them to offer lower rates to more active and healthy individuals.
Why FitBit will continue leading this space
Gupta believes that most of the companies in this space, be it Fitbit, Apple (NASDAQ:AAPL), Under Armour (NYSE:UAA), Google (NASDAQ:GOOGL), or some other company, will each be able to gain on the massive growth that the entire industry is going to see. However, he believes Fitbit has the advantage to stay No. 1, for three reasons.
1. The devices and the data platform. Gupta's biggest reason for choosing Fitbit is that the company has both great user-friendly devices and a great data platform. "Fitbit's strength is in the tight coupling of the device and the data platform that is so intimately mapped to individual health and the healthcare ecosystem in general," he said. While these other companies may have platforms and devices, he believes none of them offer the two together so seamlessly for such an inexpensive price and ease of use.
2. The focus on health. I asked Gupta his thoughts on Fitbit's platform versus Under Armour's, Apple's, and Google's health and tracking apps. Gupta says Fitbit's exclusive focus on health data and analysis is what makes it a long-term winner. He noted that UA's platform seems to be geared as a social platform, and neither Google nor Apple offers such a robust digital option.
3. The first-mover advantage. Fitbit also has the first-mover advantage, in that its name is already nearly synonymous with wearable fitness trackers, as it controlled around 70% of the market as of Q1 2015. While there will be many competitors, Gupta believes Fitbit will continue to innovate so that it will be able to keep the market share it's already gained.
Fitbit is planning to spend $150 million on R&D this year, triple what it spent in 2014. That money is going to something that Gupta thinks will keep it out in front. Even though the wrist is the natural starting place for this technology, the devices are still primitive in scope, and Gupta thinks we'll see big changes in sensors and technology that will amount to another surge in market growth.
Is Fitbit a buy?
Gupta's points about Fitbit appear valid, but when I questioned him on the individual strengths of each competitor, he did agree that there are plenty of reasons other companies will do well in this space, too, such as Under Armour's athlete appeal and obvious apparel coupling ability, Apple's huge user base and large amounts of cash, and Google's ability to quickly innovate and to put its vast amounts of user data on hand to work.
Still, he thinks Fitbit is the most interesting from an investing perspective as well. He noted that Fitbit is the only company solely focused on this space, so if it doubles its offerings, it also doubles total revenue, whereas this segment is a tiny fraction of Apple's and Google's businesses. Growth simply won't affect Apple's total earnings nearly as much as it will for Fitbit.
Fitbit's shares are expensive at a P/E of around 97, but Gupta might be onto something. In Fitbit's IPO filing prospectus, the company cited IDC reports saying that consumer spending on wearable devices (such as those Fitbit makes) tripled in 2014 compared with 2013, growing faster than any other segment in the consumer-electronics market. If that weren't enough, wearables spending is expected to grow fivefold in the next five years. If Fitbit can maintain its large market share, then shares of Fitbit certainly still have a lot of room to run.