I’ve reviewed Fitbit’s S-1 filing from last week. It’s quite clear that Fitbit has been a remarkable success story over its 8+ year lifespan. As momentum has been building around connected devices and the company sits on the precipice of an IPO, founders of any type of company can learn a lot from Fitbit. Here are a few of the core themes I’ve gleaned from their S-1:
- Marketshare Leadership – According to the S-1, Fitbit achieved a 68% share of the revenue in the fitness activity tracker market in ’14. The company has aggressively grown distribution and revenue over the past handful of years to move into this strong position. As I’ve argued previously, in most tech markets, value accrues disproportionately to market share leaders. It will be interesting to see how this translates for Fitbit once the company goes public.
- Market Expansion – Its clear Fitbit has been aggressively expanding its product line since inception, and the company now has a wide variety of activity tracker products. Additionally, Fitbit launched a smart scale and recently acquired Fitstar, a provider of mobile work-out content, adding a variety of subscription products to Fitbit’s repertoire. I think one question investors will have is around the long-term size of the fitness activity tracker market. Fitbit’s team has done a nice job attempting to expand its addressable market through organic development and acquisition.
- Growth & Operating Leverage – Fitbit has grown unit volume, paid active users and revenue at extremely rapid rates. Revenue was up about 175% in ’14 and in Q1 ’15 was up over 200% (although Q1 ’14 may have been impacted by a product recall). While the company has been growing revenue quickly, profit and cash flow have been growing as well. Adjusted EBITDA, a good profit indicator, was $191M in ’14 and $93M in Q1 ’15. The company generated over $30M of cash flow from operations in Q1 ’15 as well.
- Financing History – With all the recent news of unicorns and $100M+ “private IPO” rounds, Fitbit’s financing history is very unique. Per Crunchbase, the company has only raised $66M of venture capital leading up to its IPO, including a $43M Series D round in mid ’13 that was done at $2.21/share, a valuation of approximately $300M on a fully diluted basis (given current share count). At almost any EBITDA and revenue multiples, Fitbit seems poised to become a unicorn itself upon its IPO, ensuring a great return for its investors in all of its financing rounds.
Fitbit founders James Park and Eric Friedman emphasize in the S-1 that the company’s journey is just beginning. The IPO will be just one milestone among many and they hope to continue to focus on the long term, appreciative of their past achievements but also focused on continuing to create and transform the company, while remaining humble. Having spent some time with Park in the past, this seems fitting – he’s ambitious, forward thinking and no nonsense. I suspect public investors will be excited to support Park, Friedman and team. The allure of the connected device market should provide tailwind as well.
That said, Fitbit will face challenges as a public company. The company has several lawsuits it’s dealing with from a product recall. Competition abounds as well.
I’m looking forward to seeing how Fitbit navigates life as a public company
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