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Finance of Startups: For Dummies (Part 7 – Fitbit S-1)

Okay, so this round of the Finance of Startups, I’m going to dive into the S-1 for Fitbit – filing for its initial public offering (IPO) seeking $100M. I’ve been researching various finance concepts for a while now, and so I’d like to start putting more practice to the understanding with this kind of like David Cummings does. I figure if he’s successful and doing it, I could follow in his shadow, and take a crack and learning.
Fitbit, if you didn’t know, is well known for its wearables that count the wearers’ steps, calories burned, sleep habits, and the like. Fitbit devices are paired via Bluetooth with a user’s smartphone that then interprets the data to provide analyses and trends to the users. Fitbit is one of the first companies to really pave the way for the “quantified self” movement.
Diagram of Fitbit’s community of users – three categories and fitness levels
But before I begin, here’s what an S-1 form is:

The S-1 form, also known as “Registration Statement Under the Securities Exchange Act of 1933”, is required by the Securities and Exchange Commission (SEC) for any company seeking to sell securities on a national exchange. The form requires the company disclose details regarding the use of proceeds, current business model, etc.

So some highlights of Fitbit’s S-1:
  • Fitbit mission: “Fitbit helps people lead healthier, more active lives by empowering them with data, inspiration, and guidance to reach their goals.”
  • Company started in 2007, and as of March 31, 2015, has sold more then 20.8 million devices (~68% market share, by dollars, in 2014 accordingly to NPD Group)
  • Fitbit uses virtual badges and social competition (with other users) to motivate wearers
  • Revenue have grown rapidly (average year-over-year growth rate of 285.6%)

2011: $14.5 million

2012: $76.4 million
2013: $271.1 million
2014: $745.4 million

  • Net income (loss) has just turned into the black in 2014

2011: $(4.3) million… -30% of revenue
2012: $(4.2) million… -5.5%
2013: $(51.6) million… -19.0%
2014: $131.8 million… 17.7%

  • Device sales (ranging from $4.95 to $195.00 U.S. MSRP)

2011: 0.2 million
2012: 1.3 million
2013: 4.5 million
2014: 10.9 million

  • International Data Corporation (IDC) estimates 21.0 million devices were shipped in 2014, and estimates wearables will reach 114.0 million in 2018 – a 442.9% growth
  • Over 45,000 points of sale (retail) in more than 50 countries
  • 1.1 million registered users as of December 31, 2012; 19.0 million as of March 31, 2015
  • Acquired FitStar in March 2015 to enhance the company’s software and services especially with interactive exercise videos
  • Corporate wellness is mentioned a lot including citing the corporate wellness industry expanding from $7.4B in 2014 to $10.4B in 2018
  • The company incorporated in Delaware in 2007 as Healthy Metrics Research, Inc, but changed the name in October to Fitbit, Inc. Company is headquartered in San Francisco, CA
  • Paid Active Users:

2012: 558 thousand
2013: 2,570 thousand
2014: 6,700 thousand

  • Fitbit cites a highly competitive market not just including specialized consumer electronics companies like itself (Garmin, Jawbone, Misfit), but also the traditional health and fitness companies (Adidas, Under Armour) and even large, broad-based consumer electronics companies (Apple, Google, LG, Microsoft, Samsung). Think about that for a second, aren’t those “large, broad-based consumer electronics companies” now touching everything from fashion to cars to homes, as well? Crazy
  • Products are all contracted for manufacturing in Asian with Flextronics – sole source. This has business continuity issues and procurement implications all over it
  • Fitbit had a product recall due to users having “allergic” reactions to its devices in March 2014
  • For the three months ending March 31 of 2014 and 2015, Fitbit spent $71.9M and $21.1M on advertising and marketing campaigns
Okay, I reached page 28, and it’s getting pretty dense, so… I stopped. The S-1 continues for another 100+ pages describing in detail about each of the sections from the prospectus earlier presented as well as current product features. Skipping around, you can find some interesting other tidbits including executive compensation (like $7.8 for the President and CEO James Park, of which, $222K was salary) and much more.
Very interesting to see Fitbit, where they were, where they are, and where they plan to go. I’m surprised, though, the company did not include any other future plans including expanding into more integrative health such as building networks with healthcare providers. Hmm…
What questions do you have about the Fitbit S-1? How do you think the company will fare in the coming years?