Fitbit Looks to Full-Featured Smartwatch, Subscription Services to Spur Growth
Fitbit shares hit a 52-week low at $2.81 early Wednesday before launch of its Versa2 smartwatch and Premium subscription service. Both are expected to play major roles in a company rebound, as Fitbit tries to reverse course after disappointing Q2 results and a pullback in full-year revenue guidance earlier this month (see 1908010027). Shares closed 6 percent higher at $3.02.
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The company has been testing the $10 monthly ($80 annually) service, dubbed Premium, that will be a “critical part” of changing the company’s business model from one that’s “episodic” through device purchases to one that’s “long term,” CEO James Park said on the company’s early August Q2 earnings call.
Now, Fitbit cited a “crowded” digital health and wellness market counting an estimated 14 million U.S. adult subscribers paying an average $174 for different apps, according to its survey done April-July. Fitbit sees a “void in the market” for a single app that combines health and fitness tools, personalized guidance and coaching.
The technology in wearable devices “is quickly becoming commoditized,” IDC's Jitesh Ubrani emailed. “Ultimately this puts downward pressure on average selling prices (ASPs) for companies like Fitbit.” As Fitbit tries to transition from being a hardware-centric company to one specializing in software and services, the analyst said, “Premium is going to be vital to the company’s long-term success.”
On whether customers will be willing to pay $10 for another monthly service on top of recurring music and video streaming fees, Amazon Prime and other financial commitments, Ubrani said: “There’s a lot to be said about ‘Subscription Fatigue,’ and I’m sure many of those arguments will be applicable here as well.”
With the service to begin next month, Ubrani sees potential upside for the wearables maker if Fitbit is able to provide enough compelling data and a consolidated app experience that rivals what users are getting from different health apps today: “For example, a user who currently subscribes to Runkeeper Go and MyFitnessPal Premium can switch over to one subscription from Fitbit,” Ubrani said.
Devices will be key to driving the subscription business, and Wednesday’s launch of the Versa2 smartwatch is “very important” to Fitbit’s future path, said Ubrani: “The original Versa was their most popular smartwatch and it helped propel the company into second place in the smartwatch category,” said the analyst: “Versa2 has some big shoes to fill. The disappointment of the Versa Lite only amplifies the situation.”
Fitbit’s bet on the Versa Lite -- $159 at Fitbit.com, $130 at Best Buy Wednesday -- came up short, leading to a 27 percent Q2 year-on-year decline in smartwatch revenue, said Park on the earnings call. The stripped-down smartwatch, intended to lower the entry barrier to the premium smartwatch category, showed consumers were willing to pay more for a smartwatch with additional features “or look for discounting vs. everyday value,” Park said.
Versa2, on preorder now for Sept. 15 availability, will hit the market at the same $199 price as the first-generation model, Fitbit said, despite facing a 10 percent List 4 Section 301 tariff hike Sept. 1. The successor model adds the Alexa voice assistant, via an on-device mic, and a Spotify app. Battery is given as five-plus days. A $229 limited-edition model was advertised at Fitbit.com Wednesday for delivery in “2-3 weeks.”
Unlike the disappointing Versa Lite, Versa2 is padded with more compelling high-end features. “The addition of Alexa is definitely the right move and it makes the Versa2 more competitive with similar products from Apple, Fossil, or others in the market,” said Ubrani. The Alexa partnership could “entice Amazon to further push the Versa2” for its own interests; the Spotify addition may not have the same pull since the feature is only available to Spotify Premium subscribers, Ubrani said. While Spotify is “a big win for Fitbit, it does limit the potential for success since it relies on yet another subscription service.”
On Versa2 overall, Ubrani called the refreshed design and larger AMOLED display “welcome updates,” making the Fitbit watch a “much more elegant product that consumers would be happy to wear on their wrists.” He put it on par with competitive products, saying it’s “likely the best" device for Android smartphone users but didn’t line it up with Apple Watch “since a new product launch from them would lead to reduced prices on the older generation.”
Fitbit’s Premium service features include sleep monitoring tools that will tell users time spent asleep vs. awake, help them understand how time in each stage of sleep adds or detracts from an overall sleep score and how the sleeping heart rate compares with average resting heart rate, it said. It will launch with nine guided health and fitness programs that include actionable coaching, daily tips, structured workout plans, relaxation tools, recipe suggestions and educational content, Fitbit said.
Premium will be available in English in 17 countries via the Fitbit app this fall, expanding to additional languages in 2020, including Dutch, French, German, Italian, Japanese, Korean and Spanish. Fitbit customers will be eligible for a one-week free trial; 90 days for Special Edition Versa2 owners. A one-to-one coaching pilot to help manage a condition such as diabetes or weight loss is expected to become available in the U.S. later this year for an additional cost to Premium membership, it said.
On the upcoming holiday selling season, IDC expects ASPs for new wearables to bump up as tariffs take effect: “This could lead to consumers purchasing older devices or lower priced wearables, giving Fitbit an opportunity to move more volume,” Ubrani said.