Corporate Partnerships: Fitbit Inc’s (FIT) Secret Weapon

investMarshall Hargrave: Fitness IPOs are hot right now. Just look at one of the most successful initial public offerings of the year, Fitbit (NYSE:FIT).

The wearable tech company, which has a stronghold in the fitness tracking market, has seen its stock price nearly double from its June IPO price. But it has recently fallen on hard times. Its stock has tumbled 17% over the last two months.

Fitbit posted its first quarterly earnings report as a public company on Aug. 5, which sent the stock into a tailspin. The big worry was that the Apple (NASDAQ: AAPL) Watch is going to keep chewing away at Fitbit’s market share in wearables. However, things actually weren’t all that bad, with second-quarter Fitbit revenue of $400.18 million beating analyst expectations of $319 million.

The Underrated Growth Angle

Fitbit booked one of its largest corporate accounts last month when it partnered with Target (NYSE:TGT). Target will offer Fitbit devices to its 330,000 employees to help encourage employee fitness and lower health care costs.

Current Fitbit corporate customers have been able to get their health bill reduced by offering Fitbit devices to their employees. Corporate partnerships could be a key for Fitbit going forward, as other companies look for ways to lower their health care costs. This part of the business – corporate services – makes up less than 10% of Fitbit revenues, but it is the fastest growing part of its business.

Other employers could soon catch onto the benefits of providing wearable fitness devices to employees. Fitbit provides employers with the ability to see the amount of activity that each employee is doing. Ultimately, they can use this to help create incentives to inspire employees to be more active.

The corporate angle might be overlooked now, but tapping into the corporate wellness market – expected to be an $11 billion industry by 2019 – is a big opportunity for Fitbit, which currently generates $1.3 billion in annual revenues.

Fitbits Answer for Growth

Now, the rapid changes in technology aren’t an easy risk to navigate. Just ask the likes of Garmin (NASDAQ:GRMN). As I’ve noted before, Fitbit will have to innovate and create an ecosystem to prevent the meteoric fall that Garmin saw. Its stock topped out at $120 a share a few years back, only to fall to $20 in just 18 months as mobile phones replaced GPS devices.

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