Coverage: Fitbit surges ahead in IPO

On their first day of trading, shares of Fitbit gained nearly 48 percent, giving the wearable company a head start on the competition. Many wear their trackers like a badge, and many marketers are more excited about the prospect of harnessing all that personalized data.

The Dealbook team had this story in The New York Times with the basic details of the initial public offering and its first day of trading:

Shares of Fitbit soared in their trading debut on Thursday, even after the company priced its initial public offering above an already heightened range.

The shares opened at $30.40 on Thursday morning, up 52 percent from the I.P.O. price of $20. They closed up 48.4 percent, or $9.68, at $29.68.

The company, which sells popular wearable fitness-tracking devices like the Fitbit Surge bracelet, raised the price above its previous range of $17 to $19 a share and increased the size of the deal to 36.6 million shares from 34.5 million.

The company raised $732 million for itself and its selling stockholders. The I.P.O. price valued Fitbit at $4.1 billion.

The Forbes story by Aaron Tilley detailed just how successful Fitbit has been, particularly recently:

Sales have also been booming for the eight-year-old Fitbit. In its most recent quarter, sales have tripled to $336.8 million. Park said its three new fitness trackers (the Charge, Surge and Surge HR) contributed to this jump. But also consumers awareness around the wearables market with its own marketing and the introduction of the Apple AAPL +0.44% Watch.

Fitbit has been ramping up sales and marketing quite a bit recently. 2014 marketing expenses ballooned by more than four times to $112 million. “You could say we’ve been underinvesting as a brand over the years,” said Park. “The challenge of creating a whole new category from scratch, which is what Fitbit has done, is in educating consumers and raising awareness. It requires pretty significant sales and marketing.”

Although many people might bring up Apple Watch as a Fitbit killer, Park tries to come across diplomatic as possible. “We think the market is so big that it’s not really about competition,” said Park, “it’s actually about raising consumer awareness. There’s over $200 billion spent in health and fitness products every year in the U.S. Penetration is still pretty low. Our growth speaks to the fact that it’s a massive opportunity for a lot of different companies.”

Research firm IDC forecasts the global wearables market to grow 173.3% this year with 72.1 million units shipped.

And it’s likely this market growth that led to strong investor demand for Fitbit shares. Corrie Driebusch wrote for The Wall Street Journal that many bought the IPO since they actually wore a Fitbit:

When it first filed for its IPO, Fitbit and some stockholders planned to sell 29.9 million shares, according to a regulatory filing, but the price and share count were raised following strong demand from fund managers and analysts. In its final pre-IPO regulatory filing, the plan was to sell 34.5 million shares at a range of $17 and $19.

The deal, which was led by Morgan Stanley, Deutsche Bank andBank of America Corp., marks the third-largest U.S. IPO this year, according to deal tracker Dealogic.

While a modest rise in first-day trading is generally expected of newly listed companies, Fitbit’s big jump in its trading debut is unusual. The average first-day pop for U.S.-listed IPOs so far this year is 14%, according to Dealogic. Last year the average first-day rise for U.S.-listed IPOs was 13%.

Fitbit’s devices, which track daily steps taken and calories burned as well as sleep duration and quality, are indicative of the consumer trend toward health and fitness. Several fund managers and analysts considering the IPO said they use the device.

But in an opinion piece for MarketWatch, Tim Mullaney argued that Fitbit was simply a “toy” and lacked the power to actually change healthcare and fitness:

Fitbit makes wristbands that measure your heart rate, pulse and a few other fitness indicators — and markets them to younger people, as a glance at either its video roadshow or its TV ads will make clear. The idea is that it’s an integral part of the solution to wellness, presumably to heart disease that kills 600,000 Americans annually.

Fewer than 1% of Americans under 40 have any heart disease, and that’s the core of Fitbit’s market. Only 6% of people under 60, even, have this problem.

There are plenty of actual medical innovators who matter, but Fitbit just isn’t really in the first group. The hard job of containing costs in the $3 trillion-plus health-care industry is creating opportunity for technology companies from Athenahealth to Cerner to IBM’s Watson program. Reinventing care bolsters drugmakers like Gilead and Amgen, which are in the Valley’s backyard, even. But gadgets that measure fine distinctions in the propensity for heart disease, in a demographic that has near-zero occurrence of heart disease, are not health-care reform. It’s not serious.

Fitbit might not be a pure health play. In fact, it seems that harnessing all that data is going to be the key to revolutionizing marketing or other ways for people to make purchasing decisions. The company certainly has captured the imagination of investors and users, giving it enough capital to execute on its plans.