The wearable market is growing at a fast pace. According to several reports, the wearable market is expected to grow at a compound annual rate of 17.8% from 2015 to 2020 and will be worth over $31.2 billion by 2020. Given the strong growth, the competition in the sphere is also growing extensively. With the likes of Apple (AAPL, Financial) and Xiaomi entering the market last year, the space has become very competitive.
Investors looking to benefit from the growth of the market do not have many investment options. Firms like Apple only generate a small portion of their revenue from wearable sales. However, a pure-play wearable company that is poised to benefit from the upsurge in the sector is Fitbit (FIT, Financial).
Investors have punished Fitbit’s stock over the last few weeks as threats regarding the increasing competition and the market correction have pushed the stock lower by almost 40%. Investors looking to benefit from the rise of wearables should look to buy Fitbit on the pullback as the stock is a winner in the long term.
Moving upmarket
In every quarter, Fitbit shares the total number of devices it sells but doesn’t reveal the details for individual models. In its recent quarter, the company generated 79% of overall revenue from its latest Charge, Charge HR and Surge models.
The company’s management is more focused on this metric as it has pursued a move upmarket. In 2015, the company’s $249 Fitbit Surge and $149 Charge HR account for the two most expensive trackers in the company's portfolio.
Fitbit most likely offers models like Zip to consumers so as to create a cheap entry point into its market. The Zip is available for $60, which is not too expensive. Fitbit holds a robust position in the wearable market, but other companies are snatching market share as the wearable market is at its infancy.
According to an IDC report, in the third quarter Xiaomi observed escalating demand for its cheap Mi Band and seized 17.4% of the market, an increase of more than 800% on a yearly basis.
All new Blaze
The company’s recently launched product, Blaze, can be compared to Apple Watch in a few ways. Remarkably, it now consists of a color touchscreen with a more astonishing look than the Surge. The company is also proposing various different bands that can easily be interchanged as per different occasions, same as that of the Apple Watch.
Apple Watch comes under the category of most expensive wearable as its starting price is $350. But Blaze is valued well below the Apple Watch like most of the smartwatch competitors. Blaze is available in the market for just $200, related to Apple Watch's starting price tag. Fitbit’s Blaze comprises all the features that a client expects from a fitness-tracking wearable. Apart from this, the only drawback is that it doesn’t support third-party applications.
The significance of third-party applications cannot be stated in the long term. It's right that, while the recent batch of third-party Apple Watch applications are ordinarily average in terms of performance and functionality, there is incredible long-term prospect as a platform.
However, given that the Apple Watch hasn’t been as successful as many analysts had earlier expected, pricing Blaze at $150 can help Fitbit gain back a considerable portion of the market share. Fitbit may be sacrificing on margins, but gaining market share in the initial stages of a growing market has proven to be a winning tactic in the long run.
So, while the absence of third-party applications may put off some consumers, Fitbit could gain a lot of market share due to the cheaper price.
Conclusion
Fitbit may have been overhyped at some point, but the stock certainly looks reasonably priced right now. After losing roughly 40% of its value in just a few weeks, the stock looks attractive, and investors looking to benefit from the growth of wearables should consider Fitbit as a speculative investment.
