Wednesday, February 10, 2016

Fitbit & GoPro

Four quick reasons why Fitbit is NOT GoPro... so don't trade like it.

1. Executive Pay. The CEO and CFO of GoPro have sky high compensation packages. In fact, CEO Nick Woodman was the highest paid CEO in 2014. He even bought himself a fancy new yacht for about $40 million (Source). Compare that to CEO James Park of Fitbit who receives a modest $300,000 salary and has claimed that "Growing Fitbit is his life goal" (presumably sailing around on a $40 million yacht doesn't fit in with that goal). Some executives IPO their companies to cash out, while others look at the IPO as an opportunity to gain additional funding and grow the company further. The difference here is clear. The CEO of GoPro used the companies IPO to buy himself a yacht, while Fitbit's CEO is looking to make strategic acquisitions to grow the company.

CEO of GoPro was making $10 million more than Larry Ellison of Oracle. Executive pay is barely behind that of Satya Nadella, CEO of Microsoft, a company with a market cap 400 times that of GoPro. 

2. New Product Launches. GoPro has not come out with a significant new product since the Hero 4 series launch in 2014. Fitbit has announced a watch (the Blaze) and a new revamp of one tracker line (the Alta) for March launch. Continuous new product initiatives will help Fitbit maintain it's market share lead in wearables. On the other hand, GoPro has been caught by competitors, and it seems only marketing is keeping them ahead of the competition in the short term. 

3. Data/Software & Social. Fitbit is focusing on becoming a health company. The data they collect from users will be used to increase the health of those same users. Data is king in todays world, and CEO James Park has said that 2/3 of R&D is spent on software. That's a great sign and proves Fitbit understands that the company's true value is beyond just the hardware. True value comes from what they can tell users and how an analysis of the health data will lead to healthier lives of its customers. Fitbit's $50 per year premier membership for additional user data insights is a good step in that direction. This differs drastically from GoPro which offers little value beyond the camera hardware. The video editing software that GoPro provides has little intrinsic value to consumers who have many options in the space. Software and social aspects are an important way to rope consumers into a growing ecosystem, something Fitbit is clearly focusing on. Due to network effects, the more people that purchase a Fitbit, the more valuable it becomes for others to get one  as well. 

4. Financial Strength. Fitbit has been a profitable company for some time now and has near 0 debt on the balance sheet. Conversely, GoPro turned a loss in it's latest quarter, a holiday quarter nonetheless. Not many new tech IPOs are able to turn a profit so early, Fitbit has been an exception and looks to be in good shape on the financial front.

Ultimately, fears of Fitbit facing a similar demise to GoPro are overblown. Do not be surprised to see a decoupling of the stock price correlation. Fitbit's future is much brighter than GoPros and the market is sure to figure that out in time.

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