The wearable market is rising at a rapid rate, and so is the competition in the space. Many companies are entering the wearables segment, and the market is getting cluttered with fitness trackers and smartwatches, but Fitbit (FIT, Financial) and Under Armour (UA, Financial) are both pursuing the slot market of sports performance devices.
According to a report from Generator Research, in the previous year, the wearables market was divided in three categories –Â high-end smartwatches, midrange sports performance products, and low-end fitness trackers. Generator Research forecasted that, in the next five years, yearly sales of fitness trackers would plunge to $527 million, a drop of around 75%. However, the sales of smartwatches and sports performance devices are likely to surge approximately 750% and 35% to $154 billion and $2.9 billion.
As per report from IDC, Fitbit’s global wearables market share decelerated to 29.5%, a drop of 14.3% amid the fourth quarters of 2014 and 2015. The main reasons behind this drop were the entry of Apple (AAPL, Financial) in the wearables market, which conquered the smartwatch market, and the availability of cheap products from China’s leading firm Xiaomi which gulped up the low-end fitness tracker market.
A huge market
Apple is one of Fitbit's major competitors, and it understandably wants to dominate the growing market. Obdurately staying focused on just the high-end smartwatch segment would make this possible for Apple.
According to a forecast from IHS, the entire wearables market will account for around $40 billion in sales in the approaching four years, and 320 million devices will be shipped in 2020. That is merely too huge of a market for Apple to limit itself to just smartwatches. However, if Apple launches a comparably cheap fitness tracker, then it can hurt Fitbit in many ways.
But given Apple’s business of targeting the high-end market, it is unlikely that it will compete against Fitbit on price. That doesn’t mean Fitbit is immune to competition as there are many world class companies like Garmin (GRMN, Financial) and Xiaomi that can undercut Fitbit and gobble up its market share.
Conclusion
Fitbit’s sales are still growing at a rapid rate. However, as evident by GoPro’s drop, Fitbit’s revenue may soon fall due to its inability to defend against the rising competition. Although the entire wearables industry is growing, it will be very difficult for Fitbit to maintain the leading position amid the growing competition.
Disclosure: The author doesn’t have any position in the stock mentioned in the article.
