Fitbit shares spiked after their initial public offering today, closing at $29.68, up 50% from their $20 listing price. The enthusiasm suggests investors aren’t overly concerned about Fitbit’s status in the nascent but fast-growing fitness-tracking market, particularly as larger companies—primarily Apple—start to roll in.
The main risk is that fitness tracking is destined to simply become a feature—an app, or a few apps—on broader, multi-purpose devices, such as the Apple Watch and other similar gizmos. (Much like the “iPod” and “Kindle” are now better known as features and apps on iPhones and Android devices.)
The opportunity, of course, is for Fitbit to become the dominant platform of software and services for fitness across all devices, including its own and those of others. However, it has yet to tap into the latter as a revenue stream, currently generating “substantially all” of its sales from its own health and fitness devices.
Fitbit, to its credit, acknowledged this risk prominently in its IPO prospectus, noting an “evolving and competitive” market:
The connected health and fitness devices market has a multitude of participants, including specialized consumer electronics companies, such as Garmin, Jawbone, and Misfit, and traditional health and fitness companies, such as adidas and Under Armour.
In addition, many large, broad-based consumer electronics companies either compete in our market or adjacent markets or have announced plans to do so, including Apple, Google, LG, Microsoft, and Samsung. For example, Apple has recently introduced the Apple Watch smartwatch, with broad-based functionalities, including some health and fitness tracking capabilities.