Answer & Explanation:Assignment from nickkynickky. Based on the attached article, your own personal research about the FitBit company and its stock performance (NYSE: FIT), please discuss your opinion on whether an investment and/or a trade would be justified. Please explain why or why not.http://www.fitbit.comFitBit Stock: http://finance.yahoo.com/quote/FIT?ltr=1Article Link: http://seekingalpha.com/article/4001570-fitbit-follow-apples-footsteps
individual_assignment___fitbit_case.docx
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Individual Assignment
Could Fitbit Follow In Apple’s Footsteps?
By “Bull & Bear Trading”
Summary
Innovation increased the functionality of the early personal computer. Innovation is rapidly
improving today’s wearables devices also. Fitbit is a leading pioneer of the wearables
computing ecosystem.
Global adoption of wearable personal fitness devices is now rapidly occurring to assist in the
implementation of preventive healthcare. This macro-trend will continue for the long term.
Rapidly rising sick-care costs worldwide are unsustainable. Sick-care costs may contribute to an
increase of financial insolvencies for governments unless solutions are implemented now.
Preventive healthcare is a partial solution.
Corporations-governments are learning that the Fitbit ecosystem decreases healthcare
expenses and insurance premiums, while increasing employee productivity for higher profits.
Fitbit is pioneering this rapidly growing corporate-government wellness market.
Fitbit’s international expansion is now ramping up and promises to be strong. This is not
factored into the price of Fitbit stock with a forward PE of only 11.
The goal of this article is not to draw a straight-line comparison between Apple (NASDAQ: AAPL)
and Fitbit (NYSE: FIT), but to suggest a vision of the future in which new technologies will evolve
and then be successfully brought to consumers worldwide by new category leaders, in this case
Fitbit.
Sometimes we get so focused on the present that we forget the past and lose our imagination
for the possibilities of the future. The future is upon us in the rapidly evolving wearables
industry and Fitbit is one of the category’s leading pioneers with first-mover advantages
worldwide.
Finding the “next Apple” is one of the holy grails sought by investors and a goal worth pursuing.
So with the possibility that Fitbit may follow in the innovative, high-growth footsteps of Apple
for investors, let’s explore this idea further.
Perhaps it is ironic that the vintage Apple logo with the message “Think Different” is disregarded
by some of today’s Apple fans when invited to think differently about the future of another
rising technology company, Fitbit. Wouldn’t the early Apple culture encourage you to at least
consider the possibilities for Fitbit’s future just long enough to envision that this young
company, Fitbit, could indeed become hugely successful one day in the future?
Would Steve and Woz consider the possibility that other companies, such as Fitbit, could also
one day achieve the kind of success that Apple has achieved over the years? Hmmm. Steve
would probably say, “At least hear the man out with an open mind.” Thanks Steve. Woz, you
get back to soldering those circuits onto that motherboard, and is this garage going to be big
enough for you guys? Okay, here we go…
Out of each new technology revolution arises a number of highly successful companies who go
on to grow, deliver a range of diversified products, and become household names. Apple and
Microsoft (NASDAQ: MSFT) easily come to mind as just two winners from the computer
revolution of the 1980s. Google (NASDAQ: GOOG) (NASDAQ: GOOGL) and Amazon (NASDAQ:
AMZN) are two more winners from the Internet revolution of the 1990s. Now we are in the
early days of the newest wave of innovative technology, the wearables revolution. Who will be
the long-term winning wearables companies that deliver great wealth creation for shareholders
as these companies become cornerstones of the new technology landscape?
If history is any guide, and it often is, then companies with first-mover advantages in a new
category often have the ability to take some of that early cash flow and re-invest into their
research and development efforts to develop a series of successful products. The company that
has clearly established first-mover advantages in wrist wearables, leads the wearables
category, and is an early mHealth pioneer today is Fitbit. Fitbit has been building a small army
of engineers, designers, and developers with about two-thirds of the company, or 755
employees, now involved in the R&D effort at the end of Q116. There were 140 patents issued
to Fitbit’s portfolio, with 156 patent applications pending. Fitbit is likely to achieve significant
ROI on this R&D spend that is outstripping the competition. CEO James Park and company are
definitely looking to the future and so should shareholders.
Fitbit has received strong consumer acceptance of its products in the U.S. and globally as it has
been entering the new markets of EMEA and APAC.
Fitbit is somewhat reminiscent of another company during an earlier time when Apple
Computer was public for just eighteen months after its IPO of 4.6 million shares at $22 on
December 12, 1980. Keep in mind that today’s mighty Apple did not exist at that time, in fact
Apple was not even a hit with investors after the IPO hit the street.
Please review the split-adjusted closing price of .51 cents for Apple Computer on its IPO day at
the bottom of this Historical Price Report. Then track the price of Apple stock out about
eighteen months later where it closed at .24 cents in June of 1982. Split-adjusted this translates
into a $22 IPO for Apple Computer in December of 1980, that was worth only about $10.50 per
share in June of 1982. Apple Computer was a busted IPO and investors were down over 50%
during this 18 month time frame. Right out of the IPO gate, Apple Computer was hardly the
Cinderella story for investors that current day mythology promotes. Let’s be candid, Apple
Computer was a dog of a stock after its IPO.
With the myth that Apple was always a superstar company with a corresponding stellar stock
price performance dispelled, let’s now take a look at a few similarities between the Apple
Computer of yester-year and today’s Fitbit. At this point it would be helpful to have a time
machine enabling us to look back at where Apple has been on its corporate journey, while
envisioning the possibilities for Fitbit’s evolution in the fast-approaching future.
Back To The Future
For you to consider that Fitbit could follow in Apple’s footsteps we must first travel back to the
future. This requires that you adjust your perspective from the single-minded view that we all
have of Apple as the dominant player that it has become today. We must travel back to a day
when Apple was also a fairly recent IPO and was facing many challenges. So jam a load of
compost into your flux capacitor, climb into your DeLorean, and mash down the pedal to the
metal!
Please note in this Macworld timeline that in 1996 Apple posted, “a $740 million quarterly loss,
Apple has only 5 week’s cash on hand” as this company was on the brink of failure.
Pictured above: Very early adopters of the Fitbit ecosystem counting steps.
McFly with the Surge! Doc with the Blaze!
Astute investors recognize that history can and does repeat itself in the stock market. These
early days of the wearables computer industry bear more than a few similarities to the early
days of the personal computer industry in the 1980s. The personal computer revolution was an
important part of a confluence of events that launched a great bull market in the 1980s. Today,
the wearables revolution is a key part of the beginnings of what may become another epic bull
market for stocks. Apple Computer, as it was known at the time, was among the key companies
at the center of the computer technology revolution. Today, Fitbit is one of the key companies
and industry leaders at the center of the wearables technology revolution.
In 1984 our family became an early adopter of the Apple Macintosh personal computer. Maybe
it was because we were watching the Super Bowl and Apple’s legendary commercial, “1984”,
by Ridley Scott was aired. Or maybe the electrical engineer in my dad recognized the superior
design elements of the first Mac. Being an early adopter was cool. I was still in college in those
days and remember spending time on that classic Macintosh learning to use the GUI with Draw
and Paint features and playing a few early games. Millionaire Maker was a stock market game
that issued news developments that would move the prices of your stock portfolio. Is it any
coincidence that I became a stockbroker a few years later in 1986 and later went on to open a
small hedge fund? Did gamification have a profound influence on my future career path? And
can I thank Jobs and Wozniak for their amazing contribution to the tech-world that lead to the
Apple Macintosh, for corrupting my mind with a fairly addictive stock market game early on?
Hard to say.
And here I am many years later still in the stock market seeing familiar patterns repeating for a
new company, Fitbit, in a new category, called wearables. I remember these patterns from back
in the day when a new company called Apple Computer was helping to pioneer a new industry
called personal computers. It is now early days for the wearables industry just as the personal
computer industry experienced their own nascent phase of evolution in the 1980s. Is this
pattern of early days industry leader (Apple / Fitbit) in an industry (computers / wearables) that
is becoming a necessity in our lives starting to sound somewhat similar?
For those of us who witnessed the developments that were key to the advent of the multi-year
bull market driven by the rise of the computer revolution, the current drumbeats of the
wearables revolution sound familiar and similar. Innovative new products are coming to
market; the global consumer embraces these products; financial and productivity gains are
made by corporations and individuals that justify the expenditure for the product’s purchase;
new companies are being formed in wearables; and established companies are entering and/or
acquiring their way into the high growth wearables category. We have seen these patterns of
a technology revolution before and we know how impactful all of this can be upon boosting
our economy and stock market.
Like many revolutions, early victories are small and go largely unnoticed:
• Take the consumer’s overwhelming choice of Fitbit products as the undisputed world leader
in activity trackers. At the time of this writing, Fitbit products occupied 14 of the top 15
best selling trackers on Amazon with one Garmin (NASDAQ: GRMN) product in the top
15. The consumer has also voted Fitbit’s Blaze as the world’s number one selling
smartwatch with 5 of the best-selling smartwatches on Amazon being the Fitbit Blaze.
• Consider that over 70 of the Fortune 500 companies are subscribers to the Fitbit ecosystem
and that Fitbit is extending its dominance in the corporate wellness market that it has
pioneered for wrist wearables.
• Notice that early reviews being logged by Chinese consumers on Ali Baba’s TMall.com for
Fitbit products are very positive. Please scroll down more than 3/4 of this page to view
this 4.8 star out of 5 possible stars review by Chinese consumers on Fitbit products.
These reviews are even higher than the 4 out of 5 stars that Fitbit averages on Amazon.
This may be due to the fact that the low cost Xiaomi product is home-based in China.
Relative to the low-end product that Xiaomi delivers, Fitbit would be far superior in
consumer reviews. This graphic from the same TMall.com page shows an impressive
92.73% of Chinese gave Fitbit a 5-Star review out of 5 possible stars.
Fitbit is being very well received in the APAC market with a population of over 3 billion people.
The coming growth in sales that CEO Park stated will be, “Amazing international growth ahead
for Fitbit” is not factored into the current price of the stock with a forward PE of only about 11.
This forward multiple could easily, and probably should, triple.
Fitbit is doing exactly what you would want a smart, future-focused, growth stock to do: Reinvesting substantially into securing its first-mover advantages via global marketing to build
marketshare and ramping up R&D sharply. Fitbit is going for the jugular vein of competitors to
dominate wrist wearables globally, while Wall Street is asleep and values the company at a
bizarrely cheap forward PE of only about 11. We all know that change is inevitable. And we
believe that the wearables revolution is much further advanced than many investors realize.
Most importantly for investors, the timing of the start of this epic bull market in wearables that
we believe will lift the three major stock market indices of the Dow, S&P 500, and NASDAQ to
a chain of multi-year new highs will begin… well, it has already begun.
Here are a few similarities between early Apple Computer and today’s Fitbit:
• Both companies were/are leaders of a technology revolution;
• Both companies were/are first movers in their categories;
• Both companies were/are pure plays in their technology;
• Both companies were/are pioneers in their technology;
• Both companies were/are investing heavily in R&D
• Both companies were/are busted IPOs;
• Both companies were/are leaders in market-share for their categories, although Apple
quickly lost that lead to IBM;
• Both companies had/have brilliant and successful CEOs but they received heavy criticism in
their early days;
• Both companies experience a strong degree of brand loyalty and acceptance from consumers
on an emotional level;
• Both companies are headquartered in California less than an hour down Highway Route 101
from each other;
• Both companies ran Super Bowl commercials fairly soon after coming public.
Apple’s cash flow from earlier products lead to a breakthrough product that at the time was
revolutionary: a wearables music player called the iPod. Soon to be followed by the iPhone,
iMac, iPad, and the rest is corporate and shareholder success history. What breakthrough
innovations will the growing, heavy, R&D spend at Fitbit deliver? When will Wall Street realize
that mHealth is a huge, multi-year macro-trend that will deliver strong growth to pioneering
companies like Fitbit for years and probably decades?
One of the most exciting elements of Fitbit’s growth strategy may be it’s pioneering role in the
development of the nascent mHealth and corporate wellness spaces. Fitbit Group Health /
Wellness Insighter are initiatives that cement Fitbit’s future in what Park calls a “Digital health
and fitness company”.
Fitbit recently reported the launch of Fitbit Group Health, which brings together the offerings
that Fitbit provides to corporate wellness partners, weight management leaders, insurers, and
clinical researchers. The firm is also introducing Wellness Insighter, a new service for its
consumers that assists corporate wellness leaders in validating corporate wellness investments
with data that can be compared against that of industry peers. As the leader in the connected
health and fitness market and a trusted brand in the industry, Fitbit has driven innovation in
corporate wellness programs over the last six years with the company’s corporate wellness
offering now adopted by over 70 of the Fortune 500.
Rise of the Wearables
Today, the critics of wearable mHealth devices like the product line of Fitbit wearables and the
accompanying Fitbit ecosystem are missing a few key points. History shows us that the so-called
experts are often wrong. During the early days of the personal computer there were many
naysayers who were unable to envision the future of the personal computer industry. Consider
these quotes from past experts:
• “There is no reason anyone would want a computer in their home.” Ken Olsen, Founder of
Digital Equipment Corp, 1977.
• Or IBM’s Thomas Watson who infamously said: “I think there is a world market for maybe 5
computers.”
• You will find a few more classic gems here in the 7 Worst Tech Predictions of All Time from
PCWorld.
While the “experts” often miss the obvious even when it is right in front of them, we can all
agree that the times they are a changin’.
The Macro-Trends Driving The Growth of mHealth Wearables
The macro-trends driving the changes in healthcare expenses, financial budget deficits, and
insurance costs are undeniable and unstoppable. We have a choice to either embrace and
prosper from these changes, or to deny and get run over by the inevitable. Either way,
wearables are already here and growing in strength daily. Wearables will only grow more
essential to each of us in the decades ahead as innovation and macro-trends drive this
technology forward at a rapid pace.
mHealth wearables devices are a means to implement preventive healthcare. Preventive
healthcare is becoming a necessity because the rapidly rising costs of sick-care are too
expensive. Sick-care is the strategy that we have been employing in the past while waiting for
individuals to develop serious health issues that are very expensive to treat. The strategy of
preventive healthcare is a partial solution to negate the costs that are increasing annually
around the world from obesity-related illnesses. The obesity epidemic is resulting from our
sedentary lifestyle and poor nutrition choices.
Fitbit is already the world’s largest collector of biometric data stored on Fitbit’s servers. This
data is increasingly of interest to employers, insurers, healthcare providers, and governments.
Increased daily activity equals greater wellness and less sick-care costs as well as lower
insurance premiums. Saving money and avoiding insolvency is a driving macro-trend behind
the rise of mHealth wearables.
So corporations and governments now understand that they can decrease sick-care expenses,
lower healthcare and insurance costs, and improve quarterly bottom-line profits all as a result
of implementing the Fitbit ecosystem. Wow. This explains why Fitbit’s enterprise segment is
growing so rapidly as they are enrolling corporations and governments in their wellness
program worldwide.
Sick-care costs are unsustainable and this problem is literally leading nations like the U.S. down
a very predictable path to financial insolvency. Because these coming financial crises are
extremely serious issues, national leaders understand that preventive healthcare efforts are a
partial solution to avoid governmental insolvencies. Wearables are becoming an increasingly
essential item for each of us in our daily lives. Those who view the future of wearables like Fitbit
as an optional item or a fad are out of touch with the world-view of governments, corporations,
insurers, and healthcare providers who understand the importance of preventive healthcare
and the role being played by companies like Fitbit as the wearables industry leader and pioneer.
mHealth wearables are now becoming an essential necessity to implement for individuals,
corporations, and governments.
The Fitbit ecosystem is the leading mHealth wearables device being welcomed enthusiastically
by consumers, corporations, insurers, healthcare provider, and governments worldwide.
mHealth wearables will likely become an essential item and a necessity for all of us in our
personal, professional, and national citizenry roles. This is because the rapidly rising costs of
healthcare are unsustainable.
There is a clear vision for Fitbit’s pathway forward as a hugely successful company during the
years ahead as it continues to pioneer the mHealth wearables category. Historically, first-mover
advantages last at least a few years and sometimes even a decade or more. Forward-thinking
people can envision Fitbit continuing its present strong growth within the wearables category
that is also growing at a strong pace for many years to come. Fitbit’s recent inclusion in the
Russell Index is a good first step made just a few months after its IPO. With continued growth,
innovation, and successful new products could we one day see Fitbit become a hugely
successful company and a member of the S&P 500?
The evolution of wearables devices is happening rapidly and the future for this category is
exciting. How powerful …
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