Fitbit Completes IPO

This is written as a follow up to my previous post on Fitbit’s IPO filing.
Fitbit priced its IPO at $20/share this past Thursday night and closed the week at $32.50/share, valuing the company at over $6Bn.  A few interesting things to point out about the IPO:

  • Valuation.  While the absolute valuation of $6Bn, making Fitbit a clear unicorn many times over, is about 20x the price of the Series D completed in mid ’13, on a revenue multiple basis, the valuation doesn’t seem crazy.  The company posted revenue of $745M in ’14 and tripled revenue in Q1 ’15 over ’14.  Analyst estimates project about $1.4Bn in ’15 revenue, so the valuation sits at just over 4x current year revenue.  Additionally, analyst estimates look very conservative, with ’15 revenue growth projected at under 100%, representing rapid deceleration from historic growth, with steep drops in projected profit margins as well, despite the fact that gross margins have been expanding.  Public investors I’ve spoken to believe the company can beat these estimates, and they like that the company is profitable.  So, despite the big run up, Fitbit may still be an interesting play from here.
  • VC Cornucopia.  At Fitbit’s present price, Foundry Group and True Ventures both own stakes worth over $1Bn, in addition to the more than $200M these firms cumulatively sold at the IPO.  Jeff Clavier’s SoftTechVC, Softbank and Sapphire each own stakes between $150-300M, and the two co-founders, James Park and Eric Friedman each own stakes worth over $600M.  When put in context of the $66M in venture capital Fitbit raised pre-IPO (per Crunchbase), these returns are even more remarkable.  While creating a multi-unicorn valuation, Fitbit has been extremely cash efficient, creating tremendous returns for the VCs and founders.
  • Environment.  Fitbit has come public at a time when overall stock market liquidity has been declining, with cumulative volumes way down recently.  Given the shortage of volume in high growth public stocks, investors are paying even more attention than usual to IPOs, especially larger deals, where positions can be built in the IPO and first few days of aftermarket trading.  I’d bet Fitbit ended up with a very strong set of growth investors in its IPO as a result.  Undoubtedly, founders and boards at other high growth tech companies have taken note, perhaps realizing the IPO option may be looking more attractive again, and I expect we’ll see several S-1 filings soon.

Fitbit bears focus on the low reported retention rates of users of the devices as a worrisome sign that growth wont persist.  They also stress that competition from the Apple Watch and lower priced devices flooding the market will hit margins and growth.  Until now, however, these concerns haven’t put much of a dent if Fitbit.
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Glenn Solomon