The market for fitness trackers is heating up at both ends of the pricing spectrum, and it's only natural to wonder if Fitbit (NYSE:FIT) will still rule the roost. Fitbit's been able to stand up well against the threat of tech and smartphone giants rolling out high-end smartwatches and activity-measuring bracelets, but there's now some rumbling on the low end.
Xiaomi -- the company that's giving Apple (NASDAQ:AAPL) fits in China with its cheap but stylish smartphones -- is also gunning for Fitbit. Xiaomi claims to have sold 20 million of its Mi Band and Mi Band Pulse activity counters, and now it's raising the bar with Mi Band 2. The new wristband monitors steps taken, distance traveled, heart rate, and sleep activity. It also offers a small display -- a first for Xiaomi -- yet still manages to have a battery life of 20 days. It hits the market next week at a dirt cheap $23, but let's not assume that this will slow Fitbit down. Let's go over three reasons why Fitbit can do just fine in this climate.
1. Mi Band 2 is still leaning on China
Xiaomi is focusing on China, where the new tracker will be released on June 7. Fitbit is still relying on the U.S. market for 70% of its sales. This is important. China has grown to become Apple's second largest market, so Xiaomi's booming popularity is a problem for the world's largest consumer electronics company.
Apple's revenue in Greater China plunged 26% in its latest quarter, and Xiaomi played a big role there. That's not what's happening at Fitbit.
2. Xiaomi isn't a household name here -- at least not yet
A neat feature of Mi Band 2 is that if it's connected via Bluetooth to a Xiaomi smartphone then wearers don't need to punch in their phone passcodes to unlock their devices. However, for that feature to matter you have to own a Xiaomi phone -- and most people don't.
Having a recognized brand matters. Why do you think forward-thinking companies wanting to keep their health insurance costs in check by promoting active lifestyles through subsidized fitness trackers are turning to Fitbit? Xiaomi is going to be a force to reckon with in several product categories, but that's just not a problem for Fitbit in the near term.
3. There's plenty of growth to share
Xiaomi may have already sold 20 million devices, but you wouldn't notice if you were looking at Fitbit which sold more than that in 2015 alone. Revenue growth has slowed at Fitbit, but it still saw its top line soar 50% in its latest quarter. This is what happens when a niche is growing so fast that at least two players can post healthy growth.
There's a big market to carve out, and Fitbit remains the brand of choice in its home market. Margins will be challenged if there's a glut of cheap wrist huggers on the market, but Fitbit's stock already reflects that new dynamic. Xiaomi's Mi Band 2 is an impressive device at an even more impressive price point, but Fitbit still has plenty of room to run.
Rick Munarriz owns shares of Apple. The Motley Fool owns shares of and recommends Apple. The Motley Fool has the following options: long January 2018 $90 calls on Apple and short January 2018 $95 calls on Apple. The Motley Fool recommends Fitbit. Try any of our Foolish newsletter services free for 30 days. 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.