IPO Outlook: Fitbit Running On Pace For This Week's Hot IPO

The wearable fitness tracker company Fitbit hopes to raise $358 million this Friday in what could be the hottest IPO of 2015. With great growth across the board, the company plans to issue 22.4 million shares between $14 and $16 per share on the NYSE under the ticker FIT.

Fitbit began in San Francisco in 2007 as the pioneer of wearable fitness trackers. The company’s platform combines health and fitness devices with software and services to, “help people live healthier, more active lives by empowering them with data, inspiration, and guidance to reach their goals,” according to its S-1.

Fitbit’s first product started with the Fitbit tracker to measure user’s steps, distance, calories burned, and sleep. Fitbit’s online dashboard was also introduced which allowed it to be synced with the tracker device. Now the company offers six wearable connected health and fitness trackers that have expanded to provide GPS-based information to users.  

Fitbit’s products are sold in 45,000 retail stores and in more than 50 countries through retail websites, Fitbit.com, and as part of its corporate wellness offering. The products can be synced to over 150 mobile devices. To date, the company has sold 20.8 million devices making it the U.S. leader for fitness trackers, and according to research firm, The NDP Group, in 2014, Fitbit has 68 percent of the market.

Fitbit’s strategy going forward is to continue to release innovative products and services, invest in R&D, capitalize on international markets, and invest in growth through ramping up its sales and marketing efforts and branding. In its recent S-1, the company recognizes, “that as healthcare costs continue to rise, employers will seek ways to keep their employees active, healthy, and productive.”

Fitbit hopes employers will either implement or improve their corporate wellness programs. It aims to capitalize on this trend by increasing its focus on building relationships with employers and wellness provides which currently make up less than 10 percent of the company’s revenue.

Financials

Since the company’s inception, it has experienced strong year over year revenue growth. In 2012, 2013, and 2014, Fitbit had revenues of $76.4 million, $271.1 million, and $745.4 million. Q1 2015 revenue increased to $336.8 million from $108.8 million Q1 2014. During 2012 to 2013, the company sold 1.3 million, 4.5 million, and 10.9 million devices. For Q1 2014, it sold 1.6 million and 3.9 million devices in Q1 2015.

Cumulatively, Fitbit has sold 20.8 million devices making it the leader in the U.S. market for fitness trackers. The company noted in its prospectus that revenues tend to be cyclical, typically experiencing higher revenue in Q4 compared to other quarters due in large part to seasonal holiday demand. To illustrate, in 2013 and 2014, Q4 represented 40 percent and 50 percent of Fitbit’s annual revenue.

Fitbit had a net loss of $(4.2) million in 2012 and $(51.6) million in 2013. The company became profitable in 2014, earning $131.8 million in net income. Net income for Q1 2015 was $48.0 million compared with $8.87 million Q1 2014.

Fitbit has $237.85 million in cash, total assets of $669.35 million and total liabilities of $459.63 million. The company also has $159.61 million in long-term debt. In March 2015, Fitbit acquired FitStar which makes a variety of fitness and yoga apps that provide users with customized exercise programs for users. Fitbit made the acquisition to give it greater access to the online fitness instructional market and to allow FitStar to increase its user base with Fitbit’s technology.

Active users are growing quickly. From 2012 to 2014 active users grew from 0.6 million to 9.5 million active users in Q1 2015. The number of active users is based on subscription and device activity that’s associated with each Fitbit user account

Will Fitbit Remain Untouchable in the Sizzling Market?

“According to International Data Corporation, or IDC, the wearable market is growing faster than any segment in the global consumer electronics market. In 2014, shipments of wearing devices more than tripled compared to 2013 which reached a total of 19.6 million units shipped.”

IDC experts estimate the market for wearable devices, “will reach 126.1 million units shipped in 2019 which represents a $27.9 billion worldwide revenue opportunity.” As Fitbit continues to increase its platform, consumers are, “viewing its products and services as a great alternative to other health and fitness activities,” according to its S-1.

With many dollars being up for grabs in this dynamic, fast growing segment in tech, it should come as no surprise that competitors are working fast to become the dominant leader. The main players in the wearable industry are Fitbit, Jawbone, Xiaomi, Samsung, Nike, and most recently Apple.

The biggest threat to Fitbit, according to U.S. China Daily, is Xiaomi which has established itself as the world’s second largest retailer of wearables. The company has been blazing a trail in China were it has flooded the market with its imitations of Apple’s iPhones and iPads along with a GoPro copy. The company shipped 2.8 million devices during Q1 of 2015 which was responsible for about 25 percent of total wearable shipments globally which was an increase from zero in 2013.

Just because a company was the first, doesn’t always mean that it will stay the biggest and best. Just look no further at McDonald’s recent hiccups. Although Apple recently launched its smartwatch, the company maintains a premium on its products’ pricing. It probably won’t pose much of a threat to Fitbit as Apple will service the higher end consumer that doesn’t mind paying for goodwill while Fitbit will be the mass market choice.

Conclusion and Pricing Info

Fitbit has demonstrated strong year over year growth in revenue with a turnaround in profits while continuing to be the market leader in the wearable device category. The company is on a consistent growth trend of beating past revenues and is making moves into the broader fitness market to expand market share. This is likely to be the hottest IPO of the year.

Fitbit expects to net $310.8 million in IPO proceeds and intends the use the money for working capital, R&D, sales and marketing activities, general and administrative matters and capital expenditures.

Fitbit expects to issue 22.4 million shares between $14 and $16 per share on the NYSE under the ticker FIT. The main underwriters include Morgan Stanley, Deutsche Bank, and BofA Merrill Lynch. Pricing is expected for Wednesday night and the IPO will open on Thursday, June 18.

Other Offerings

Wednesday June 17

Nivalis Therapeutics NVLS plans to offer 4.29 million shares at a price range of $13 to $15 per share through Cowen and Company, Stifel, and Baird.

Thursday June 18

Fitbit FIT plans to offer 29.9 million shares at a price range of $14 to $16 per share through Morgan Stanley, Deutsch Bank Securities, and BofA Merrill Lynch.

Univar UNVR plans to offer 20 million share at a price range of $20 to $22 per share through Deutsche Bank Securities, Goldman Sachs, and BofA Merrill Lynch.

Friday June 19

Mindbody MB plans to offer 7.12 million shares at a price range of $13 to $15 per share through Morgan Stanley, Credit Suisse, and UBS.

Ritter Pharmaceuticals RTTR plans to offer 1.82 million shares at a price range of $10 to $12 per share through Aegis Capital Corp, Chardan Capital Markets, and Barrington Research.

Fogo de ChaoFOGO plans to offer 4.4 million shares at an expected range of $16 to $18 shares through Jeffries, J.P. Morgan, and Credit Suisse.

8Point3 EnergyPartners CAFD plans to offer 20.0 million shares at a price range of $19 to $21 per share through Goldman Sachs, Citigroup, Deutchbank.