Fitbit in a transition phase
During Fitbit’s (FIT) 4Q17 earnings call, CEO James Park stated that Fitbit is in a multiyear transition process. The company aims to leverage its core brand assets, data, and large customer community. Fitbit needs to focus on product innovation to beat competition from Apple Watch and peers Garmin (GRMN), Korea’s (EWY) Samsung (SSNLF), and China’s (FXI) Xiaomi.
Fitbit needs to adapt to the changing wearable device market, which is expected to grow at a compound annual rate of 18.4% between 2017 and 2021, according to IDC Research. Fitbit, a major player in the wearable device space, accounted for 13.7% of the market at the end of 3Q17.
Fitbit also expects to gain further traction in the healthcare space and wants to optimize its cost structure to improve profit margins. The company intends to transform its business from “an episodic-driven model centered around device sales in more recurring non-device revenue.”
Growth potential in the wearables market
Fitbit’s management believes there is a significant opportunity for the company to penetrate the wearables market. Fitbit wants to increase its market share in this space and drive global sales by expanding to new geographies and demographics. The company is also looking to launch a new “mass appeal smartwatch” in 2018 to attract new customers.
Fitbit understands that the wearables market is price sensitive, with promotions playing an important part in driving sales. The holiday period saw strong demand for the Fitbit Blaze. At $150, the product was reportedly sold out despite it being on the market for approximately two years.
Similarly, the Charge 2 saw healthy demand and was Fitbit’s bestselling device in 4Q17. Fitbit aims to now try to launch similar products at lower price points to attract customers. However, this might put additional pressure on its profit margins.