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On the day of Fitbit's IPO, I had the decision to buy the stock at around $30 per share. But due to my research and overall opinions, I decided against buying the stock. Despite this, the stock has risen to around $47 (at the time of this article), or up 56%. But below are my reasons for why I did not purchase Fitbit (FIT) on the opening day of trading.
Pro: Cheapest and Smallest Device
The main advantage of a Fitbit is their devices are the smallest and cheapest device. This makes it a simple decision for those looking to purchase a wearable trackable. Therefore, it isn't uncommon to see the Fitbit devices available in 2 packs at warehouse stores like Costco. The Fitbit features are general enough that it would make for a reasonable gift.
Con: Fitbit Attracts the Casual Consumer
Without a doubt, wearable activity trackers can be found everywhere. Not only does Fitbit offer various bands that track your every move, but other devices like the Apple Watch, Nike FuelBand, Garmin Forerunner, and even most smartphones (assuming the user carries the phone in their pocket). In my opinion, there are three kinds of wearable buyers:
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Fashion - Those looking to make a fashion statement or to match their existing technology. These users are likely to continue wearing these as a kind of statement. Tracking activity is an added bonus of the purchase, not the primary reason. These types of devices include the Apple Watch and Android Wear.
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Runners - Those looking to track every detail of their run. They only wear their watches when they're out on a run, or wear their watch to identify themselves as runners. These users are likely to continue using their device when they train for races and the actual race. These types of devices include Nike FuelBand and Garmin Forerunner.
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Casual - Finally, this is the casual user, who is curious about all the hype. They're interested in tracking their steps, so they purchase the cheapest device possible. These consumers are likely to discontinue use when the novelty of the spastics wear off. These types of devices include smartphones and the Fitbit.
The problem with Fitbit attracting the casual consumer is they are more likely to be a short term user, which doesn't bode well for the business strategy. I personally have asked around my friends and found that at least half of the people who purchased a Fitbit discontinued use after a year.
Con: Business Plan Includes Premium Subscription
A part of Fitbit's business plan include users signing up for a premium subscription that costs $49.99 a year. However, if Fitbit attracts a majority of casual user, they are unlikely to want to fork over a yearly fee to simply track their usage. This is especially true since there are a handful of apps on both Android and iPhone that track and display usage for free. I casually run once a week, and keep my smartphone on me to track my steps (via Endomondo) and progress and I get this for free. I also don't know anybody who has signed up for the premium service, though I'm sure they must have some users.
Overall
Overall, I can't imagine a long term strategy where the Fitbit will strive. As long as Fitbit can convince consumers to purchase their device, they will be profitable. Unfortunately, casual users are finicky. Once they find something new to buy, the Fitbit won't have a strong base of consumers like the fashion and runners class of device have.
Looking back at the performance, I should have bought the stock for the short term. But at this time, I still don't plan on purchasing Fitbit.