- The best plays aren't public and won't be until they're played out.
- Apple has proven it is best at monetizing the consumer space.
- Look closely for FDA approvals.
If 1981 was the year of the PC, and 1994 was the year the Web was spun, then 2014 is definitely the year of the fitness tracker.
Privately-held Fitbit, which has gotten $43 million in venture capital, is the company which made them a "thing." Canalys estimates it sold half the 2.7 million activity bands shipped in the first quarter.
At $100 each, that comes to almost 1.4 million units per quarter, 4.8 million for the year, and almost $500 million in revenue. Put in a multiple of 5 on those sales, which you do with fast growing tech companies, and you're looking at a $2.5 billion valuation.
But you're not going to get a sniff of that. Fitbit doesn't want your investment. If they need more cash they're more likely to do another round of private financing instead. And by the time they do reach the stock market, chances are the trend will be played out, given coming competition from Google (GOOG) (NASDAQ:GOOGL), Microsoft (MSFT) and Apple (AAPL).
This is what is wrong with today's market. The public is not invited to the party. We get to clean up after and share scraps.
Market analysts have gotten out their "hockey stick" graphs on wearable computing, with estimates ranging from $18 billion in 2018 to as much as $30 billion, depending on what is included and what is measured.
They're hot, and they're cool. Even in my own family, my wife and daughter now sport Fitbits, and compete with one another to see how many steps they're taking and how well they're sleeping. They're even being lampooned in The New Yorker, proof they're a cultural phenomenon of the first rank.
Even if Fitbit went public today, some here might be screaming "sell." Apple CEO Tim Cook has called wearables a "profound opportunity," not just on the wrist, and the company has already prepared for the launch of an iWatch with new ads for its iPhone 5 built around health apps.
Tom's Hardware expects a Microsoft watch in October, with 11 sensors, one that continually monitors heart rates and syncs it to devices. That's a hole in Fitbit's model - they don't yet measure heart rate and blood pressure, just activity. I held off on buying a Fitbit precisely because it didn't do that.
Google showed off two smartwatches running its Android Wear software during Google I/O, from Samsung (OTC:SSNLF) and LG (NYSE:LG). Google is taking Microsoft's old approach to this market, relying on OEMs and just licensing them software, while hoping to pick up service and software revenues on the back end.
If you want to play this game, the best suggestion is to pick up some more Apple, despite the fact it's already up 17% so far this year and its P/E is nearing 16. They have proven much more capable of monetizing this kind of technology than any rival - they trail badly in phones and tablets but rake in the bulk of the sector's profits. Solid design, low-cost Chinese production and proprietary software all indicate it should do the same here. If you think the Microsoft Surface 3 is going to be a hit, then you might pick up some of their shares as well, once they announce their product.
But if you really care about this technology, as a technology, you might want to wait for the IPO of Proteus Digital Health. They have gone to the trouble and expense of getting FDA device approvals, meaning they can be sold through doctors and hospitals, and connected directly to clinical systems. You can easily find which companies have gotten PreMarket Approvals, or 510 (NYSE:K) clearances, on the FDA Web site.
Just in May this approval was given to hundreds of new devices, including products from Baxter International (BAX), Samsung and Boston Scientific (BSX). Once a major wearable manufacturer jumps through these hoops, doctors can prescribe their devices, and insurers or Medicare will pay for them. Combine FDA approval with mass market advertising from name brands and you'll have your revolution - not before.
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