Saturday, January 16, 2016

Fitbit Blaze & the Need for Speed

Fitbit recently announced it's newest product line, a smartwatch deemed the 'Blaze'. Similar to the Apple Watch in looks, the Blaze touts 5 days of battery life and a strict focus on fitness features. CEO James Park talked up the "style" of the watch and wants Blaze owners to have a simplified user experience. Not only does it look like an Apple Watch, the CEO is starting to sound like an Apple executive.  Investors were left unimpressed with the product and the words, the stock has shed over 30% since the announcement.

                   The Apple Watch                                 vs.                                   The Fitbit Blaze

According to investors, the two years of resources Fitbit spent developing the Blaze may have been better used elsewhere. Though consumers seem to have a different opinion than investors. The watch went on to win multiple awards at the CES show it was unveiled at. Now valued at 30 times earnings, investors are expecting bigger and better than just the Blaze. I believe current worries about Fitbits future lie not with the Blaze, but with two other things.

Before going into what needs to be improved. I need to clarify that I am bullish on the Fitbit's future and the future of wearables in general. Here is what I think Fitbit does have going well for it right now.... 

1. The brand name and beneficial network effects of controlling 85% market share.
2. Increasing use of Fitbit in corporate wellness programs
3. The social appeal (Challenges, Forums)
4.. Potential monetization of user health data analysis... the $50 per year Fitness Premium is moving in this direction.
5. Growth of overall wearable markets (The pie continues to grow)

Now, there are plenty of quick software improvements that will make existing customers more involved. Here are the two improvement areas that Fitbit investors should be more concerned and excited about...

1. The slow pace of software enhancements
2. The lack of lineup refresh. 

CEO James Park has touted that Fitbit has never had a bad quarter, indeed the 8 year old company has consistently turned a profit and has little to no debt. That cannot be said for plenty of other companies that had IPOs in 2015. And it is a great foundation for the company to build on, but moving forward the company needs to move faster, and the insistent on maintaining profitability in the short term may be holding the company back and allowing competitors to catch up. Apple, Under Armour, Microsoft and others that have expanded into the wearables market all have deeper pockets. Growth is key to maintaining the edge for Fitbit. Fitness trackers are not a fad, people do truly love quantifying their workouts. As the current leader in market share, Fitbit needs to continue improving and continue innovating or else others will quickly catch up.

Software should be a #1 priority for Fitbit. The company does have a forum entirely dedicated to new software Feature Requests. Browsing through the posts, you can quickly spot posts by customers who love their Fitbit, but want it to be able to tell them even more. Some requests are listed below.

- Additional challenges beyond steps and daily challenges. Something like adding in a 1 hour workout challenge, or a monthly calorie challenge etc...

- Better sleep analysis, possibly combining sleep with heart rate analysis to gain additional understanding of our sleep patterns. A better user interface.

- Adding exercises like push-ups/situps and cycling
- Idle Alert to buzz you when you've been inactive for a certain period (post has been up since 2013)
- Alarms that can wake you up naturally based on your sleep pattern (post has been up since 2013)

Even very a simple addition like adding new clock faces have been left untouched. What are software engineers doing at the company?

Additionally, I think Fitbit should be investigating the potential for bands that can track heart rate or blood pressure. The heart rate monitor is not as accurate as it needs to be, as recent class action lawsuits show. Bands with sensors would help incorporate even greater levels of accuracy.

There are plenty of ways for Fitbit to keep moving forward. An emphasis on software and an entire lineup refresh with better sensors is monumentally important. The current challenge feature, the ability to add friends and communicate about your workouts throughout the day is a major differentiator from other fitness trackers. Investing in hardware is important, but the ecosystem of Fitbit needs to be greatly expanded and utilized much more effectively to fend off competition. A moat needs to be built to keep users from jumping ship so easily if cheaper competitors exist.

Ultimately, I think Fitbit is a buy at it's current level of $17-$18. They clearly had a great holiday season, backed up by being the #1 downloaded App on the Apple App Store over Christmas. The company is off to a fast start, but now it needs to put it all together.