Fitbit (NASDAQ: FIT) reported stronger than expected first quarter results on May 1. In addition to meaningfully beating top line and bottom line expectations, the results included multiple, other items that are tremendously positive for Fitbit stock.
The company’s revenue rose 10% year-over-year, its tracker revenue rose YoY for the first time in three years, its smartwatch revenue soared 117% YoY, and the revenue it obtains from companies and insurers jumped 70% YoY.
Furthermore, FIT did not raise its 2019 guidance, but said it was not doing so only because it chose to be “prudent,” a code word for conservative.
A Closer Look at FIT
Still, Fitbit stock fell meaningfully, as investors chose to focus on the few negative aspects of the company’s results, including lower average selling prices and conservative Q2 guidance.
I believe that these investors are making the classic mistake of focusing on the trees instead of the forest. That’s because I think that FIT has a tremendous monetization opportunity that will enable Fitbit stock to at least double over the next year or two. Fitbit’s strategy for monetizing its users on a massive level is becoming clear.
FIT CEO James Park reported that a large study of diabetes prevention methods found that people who used Fitbit devices, “were more active and lost more weight during the program than those who did not and were more likely to be engaged in the platform a year later.”
Additionally, subjects who used Fitbit devices averaged an hour more activity per week for much of the program than those who did not, he stated.
Clearly, people who use step-tracking devices are more active and, consequently, less like to have diabetes, heart disease and some forms of cancer than those who do not use such devices.
As I’ve written previously, insurers and employers have tremendous incentive to keep their employees and clients healthier.As a result, they will likely be willing to pay meaningful amounts of money to do so.
Opportunities Abound for Fitbit
Fitbit is already taking advantage of this opportunity on multiple fronts. Many Medicare Advantage programs, spread around 27 states, are covering Fitbit devices, Park reported. Furthermore, three national health plans are currently using Fitbit Care as their means for diabetes management. “There’s a lot of interest (among insurers) in our Fitbit Care product,” Park said. With Fitbit Care, the company analyzes patients’ data it obtains from its own devices as well as other devices. and uses that data to offer patients ways of improving their health. In the second half of this year, FIT plans to launch a premium offering for individuals based on Fitbit Care. I believe that, over time, Fitbit Care will be adopted by many employers, health insurers, and individuals. As everyone knows, obesity is a major problem in the U.S. and leads to tremendous health problems. Under the principle that “what gets measured gets managed,” step-tracking devices definitely help people become more active. Employers and health insurers have a financial interest in keeping their employees and clients healthy. And individuals, of course, have many reasons to want to be healthier and avoid obesity, and Americans already spend a great deal of time and money seeking to accomplish those goals. Therefore, I believe that there’s a tremendous addressable market for Fitbit’s devices, encompassing both enterprises and individuals. If FIT can obtain a sizable piece of that market, FIT’s results and FIT stock will definitely rise tremendously over the long-term.
Fitbit Stock and the Monetization War
Fitbit is in a “sweet spot” that will allow it to become the leader of this huge addressable market. The smartwatches sold by Apple (NASDAQ: AAPL) and Garmin (NASDAQ:GRMN) are too expensive for most enterprises and many people who want to use step trackers to improve their health. At the same time, many enterprises and people will not be ready to trust Chinese companies who sell cheaper step trackers, but don’t have well-respected brand names, with the important task of helping themselves or their clients/employees improve their health. That leaves Fitbit and Samsung as the remaining options, and FIT’s devices already meaningfully outsell those of Samsung, giving FIT an important advantage over its Korean competitor. I was disappointed that FIT did not make any new announcements regarding its devices’ ability to diagnose diseases or take measurements that are crucial for individuals’ health, such as blood oxygen levels or sleep apnea. In the past, I have said that Fitbit must make positive strides in those areas for FIT stock to rally. Still, the company noted that it was continuing to work with the FDA to “test and develop” those types of solutions, and I recognize that it takes a long time to get the agency to approve devices. More importantly, I’m now convinced that, over the next year or two, monetizing Fitbit Care will prove to be a tremendous, positive catalyst for FIT’s results and FIT stock., enabling Fitbit stock to at least double during that time As of this writing, the author owned shares of FIT stock.
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