(Update: Fitbit priced its IPO shares at $20 and they opened for trading on June 18 at $30.40. The stock looks a lot less appealing with a $6.2 billion market valuation.)
In technology IPOs of late, hardware is hot and Fitbit (FIT) looks to be the next rocket.
The leading maker of health and activity tracking bands, Fitbit is scheduled to price its IPO after the market closes on Wednesday. Underwriters for the company upped the expected per share price this week to $17 to $19 a share, from $14 to $16 previously, setting a total market value of about $4 billion.
Excitement is building among investors that Fitbit's blistering sales, which tripled in the first quarter, and strong brand loyalty can withstand competition from cheaper Chinese gadget makers like Xiaomi as well as Apple's (AAPL) new watch that incorporates some fitness features. Unlike most tech IPOs over the past year, Fitbit also has honest-to-god, no-accounting-tricks-necessary profits.
One good sign for Fitbit: following in the footsteps of Kleenex, Xerox and Google (GOOGL), the company's name has become synonymous with its entire category. Whether it's being spotted in White House photos of the president's wrist or cited on popular television shows, Fitbit has grabbed all the attention in the growing fitness tracking movement, which includes players like the Nike+ FuelBand, Jawbone.
With a $3.7 billion stock market value at the mid-point of its expected price range, Fitbit would be valued at about 3.8 times its last 12 months of sales and 22 times trailing net income. That's close behind the last hot hardware IPO, GoPro (GPRO), which trades at 5.1 sales and 65 times net income, giving Fitbit's share price some room to run.
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The company also seems to be benefitting from the perception that Apple's watch isn't turning out to be the market-dominating powerhouse some expected. Pacific Crest analyst Andy Hargreaves on Tuesday noted that Google searches for the Apple watch have declined below the level of searches for the fast-fading iPod.
No one should count Apple out of the wearable wars just yet -- and just-announced improvements to the watch's software could make the device considerably more attractive to consumers.
But the initial stumbles seem to have some analysts and investors convinced that Fitbit may have the better product right now. The company's bands and doodads, ranging from the $60 Zip to the $250 Surge, have much longer-lasting batteries, more accurate tracking features and don't require runners to carry a phone.
Fitbit is also working to create a defensible market position by integrating software and services into the product line. Fitbit buyers who have stashed a year or two of exercise data and analysis on the company's servers, or who are competing with friends on the company's social network ranking boards, will be less likely to jump ship just for a competitor's niftier hardware. While some buyers quickly tire of the tracking rate race, Fitbit claims 9.5 million active users after selling 15.4 million bands over the past two years.
There are certainly some risks to consider. Private competitor Jawbone filed a lawsuit last month alleging Fitbit tried to steal its intellectual property. And Fitbit suffered an embarrassing and expensive recall of its Force wristband last year after some users suffered an allergic reaction to an adhesive used in the device. Meanwhile, Apple, Jawbone, Garmin (GRMN) and other competitors are taking aim at the market leader.
But despite the longer-term competition, Fitbit's strengths should be more than enough to get the IPO off the ground this week.