Fitbit financials tumble but that might not worry Google

Fitbit might not be the profit bonanza it once was, but with sales increasing it offers Google another interface to collect data and launch new services.

Although the financial results do not seem the most attractive at first glance, it is always worth remembering what the new objective of this business is likely to be. Google acquired Fitbit in November, and while the Mountain View residents never say no to money, there is a bigger picture.

Fitbit is most likely about exposure, increasing the number of Google interfaces in society and offering more opportunity for the internet giant to create services. This is where Google’s expertise lies, in software not hardware, but it does occasionally need to encourage the development and adoption of supporting ecosystems to realise its own goals. If more smart devices are being worn by consumers, the greater the opportunity for Google to make money.

“In 2019, we continued to advance our mission of making health accessible to more people around the world by delivering devices, software and services at affordable prices that help improve peoples’ health,” said CEO James Park.

“As a result, we sold 16 million devices and our smartwatch business grew 45% at retail, due to strong demand for Versa 2. Our community of active users increased to nearly 30 million, and Fitbit Health Solutions grew 17%, underscoring the strength of the Fitbit brand.”

2019 2018 Change
Total Revenue 1,434.8 1,512 (5%)
Net Income (120.8) (320.7) (264%)
Devices Sold 16 13.9 15%
Monthly Active Users (MAUs) 29.6 27.6 7%

Figures in millions (US$)

The full year financial measurements are clearly not heading in the right direction, though part of this can be attributed to the average selling price of the devices decreasing 17% to $87. This trend is thanks to the decision to introduce more accessible and affordable devices, increase the range of devices and various promotions or offers.

Perhaps the most important statistic to note here is the number of devices sold over the period. This is up 15% on 2018, while 61% of sales came from completely new customers. For the repeat customers, 54% came from customers who were inactive during a prior period meaning Fitbit is re-engaging those it might have lost as well.

Google might have spent $2.1 billion to acquire the Fitbit business, but it was highly unlikely going to be driven by the direct revenues it would achieve. $1.434 billion is nothing to turn you nose up at, but it is a drop in the ocean if Google can scale wearable devices in the same way it has done to smart speakers.

Prior to the entry of Google and Amazon, the smart speaker segment was sluggish. Adoption was almost non-existent, and interest was even lower. But in introducing their own, more affordable, devices and very cash-intensive advertising campaigns, these two internet giants drove up engagement and sales, whilst also forcing competitors to create their own products.

Looking at the final quarter of 2019, Strategy Analytics estimates that 55 million devices were sold globally, with Google collecting a 24.9% market share. Others are catching-up, but that won’t bother Google.

The more smart devices which are in the world, the more opportunity there is for Google to own the platform which services are build on and through. Android extends the Google influence into the smartphone world, the smart speaker gives it a voice interface in multiple rooms in the home and Wear OS is a version of Google’s Android operating system designed for smartwatches and other wearables.

From here on forward, pay a bit of attention to the financials of Fitbit, but be more interested in the number of devices which are being sold and the number of customers who are signing up to not only Fitbit’s health monitoring services, but also Google’s. This is a new data treasure trove for Google and a further opportunity to monetize digital lifestyles through a new interface.

Apple continues to command the smartwatch market – report

Analysts believe Apple has increased its smartwatch shipments by 50% to capture a bigger share of an expanding market. The gap between the Apple Watch and the chasing pack is widening.

Unlike the contracting smartphone market, the smartwatch market is still experiencing fast growth, although the absolute volume is still small. According to data published by the research firm Strategy Analytics, 12.3 million smartwatches were sold in Q2, up by 44% from 8.6 million a year ago.

5.7 million pieces of Apple Watch were shipped in the quarter, up by 50% from 3.8 million in the same quarter last year, giving Apple, the run-away market leader, a 46.4% market share, up from 44.4%. The biggest market share gain, however, was registered by Samsung. The Galaxy Watch maker more than doubled its volume to 2.0 million from 0.9 million in Q2 2018 and took over the number two position on the leader board with a 15.9% share. Samsung’s gain was primarily at the expense of Fitbit, which saw its market sharing plunging from 15.2% a year ago to 9.2%.

“Fitbit has struggled to compete with Apple Watch at the higher end of the smartwatch market, while its new Versa Lite model has struggled to take-off at the lower end,” Neil Mawston, Executive Director at Strategy Analytics, commented on the competition dynamics. “Fitbit will have to move fast to execute a recovery, because Samsung, Garmin, Fossil and other competitors are keen to grab a slice of its valuable health and fitness customers.”

The research firm does not publish the value and value share of the smartwatch market, but it should be safe to estimate that Apple’s leading position would be more commanding if calculated in monetary terms, considering that Apple Watch is generally priced 40% higher than the Galaxy Watch with similar features, which in turn is generally more expensive than the smaller competitors.

Smartwatch market Q2'2019 SA

Although Apple does not break down sales income to product lines, “Wearables, Home and Accessories”, the business unit that includes the Watch, reported the highest growth (+48%) among all the business units in Apple’s Q2 results, and has overtaken the total revenues from the iPad unit.

Tim Cook, the CEO, is also banking high hopes on the Apple Watch for future growth. In a January interview by CNBC, Cook claimed the Apple Watch has democratised health care. “We are taking what has been with the institution and empowering the individual to manage their health. And we’re just at the front end of this,” Cook said. “But I do think, looking back, in the future, you will answer that question: Apple’s most important contribution to mankind has been in health.”

The FDA certified Apple Watch is still not a medical device

The new Apple Watch has been cleared by the FDA to sell as a low-grade health tracking device but is not producing medical grade data.

At the event where the new iPhones were launched, Apple also launched the 4th iteration Apple Watch. Though it was not the focus of the event, Apple deservedly prided itself for being the first smart watch to pass FDA test. One feature highlighted at the presentation is, by combining the readings from the gyroscope and the accelerometer the Watch can tell when a user has tripped or fallen. If the user stays static after the fall for more than a minute, the cellular equipped Watch can automatically call for help from emergency service or reach out to the family or friend. This can turn out very helpful for the aging population.

Another function of the Apple Watch being marketed is its capability to detect and alert the user irregular heartbeats which can be a symptom of a heart condition called atrial fibrillation, or AFib. This can also be a meaningful feature for a large user group: according to estimates by the US Centers for Disease Control, between 2.7 and 6.1 million people in the US have AFib, many of whom may not be even aware of it.

Apple has conducted an “Apple Heart Study” with Stanford University, the findings of which became the basis on which it gained the FDA clearance. However the total sample size was small (few than 600) and the match rate with professional medical devices was not extremely high. But the data was good enough to convince FDA that the solution worked and it was safe. Apple Watch was given a Class II risk device category, meaning it will not be life threatening even if it does not work. In contrast, if a pacemaker stops working the patient will die, therefore it is classified Class III.

In its approval file to Apple, the FDA demanded Apple to explicitly spell out the possibility of inaccurate reading as well as warn users that the is not a replacement for medical care, although the worst that can happen when the Watch reading is wrong is to cause scare for a healthy user.

Therefore, the new Apple Watch can do the job of a low to mid-range electrocardiogram reader, but it is not a medical device. In a typical professional situation, a patient will have 12 reading leads attached to different parts of the body, including the chest and the limbs, to provide accurate reading. What Apple Watch can give is equivalent to one of them, on the wrist.

No professional physicians will make judgement based on the reading on the Apple Watch. Any sensible users had better not either.