Wearable Tech Hits The Runway In Bid To Expand Appeal

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Includes: AAPL, FIT, FOSL, GOOG, GOOGL, GPRO, INTC, KORS, LUX
by: Motif Investing

Summary

Wearable tech companies are looking to grow beyond their first-adopter base.

Investors appear optimistic about new products on tap for the holiday season.

Motif mentioned: Wearable Tech.

Stocks mentioned: Intel, Fossil, Luxottica, Fitbit, Michael Kors, Alphabet, GoPro.

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Is it possible that high fashion will be the vehicle to drive wearable technology into the mass market?

As popular as the young sector is, the industry's manufacturers haven't yet made wearables fashionable enough to expand beyond its core user base of male early adopters. "As a segment, technology doesn't do gender differentiation very well so far," Carolina Milanesi, an analyst at market research firm Creative Strategies, recently told the Financial Times. "You don't need it when a PC is a PC - and you don't need to change it if I'm a man or a woman - but it is different when I'm wearing it."1

Even Apple (NASDAQ:AAPL) hasn't quite succeeded in building an Apple Watch that goes outside its core audience, despite the device now offering a wide range of straps, including a collection handmade by Hermes artisans in France.

Now, however, some fashion houses are forming partnerships with tech companies to grow their respective businesses in a symbiotic relationship - tech makers are teaching fashion companies about how to make chips and batteries thin, while fashion houses instruct Silicon Valley about the trials of making many sizes and making sure that clothing loaded with technology can still function in the real world as something that is routinely tossed into the washing machine.

As the FT reported, chipmaker Intel (NASDAQ:INTC) has worked with watchmakers Fossil (NASDAQ:FOSL) and Tag Heuer and eyewear company Luxottica (NYSE:LUX), while fitness device maker Fitbit (NYSE:FIT) has partnered with Tory Burch and clothing manufacturer Public School.

Even Michael Kors (NYSE:KORS) has gotten into the act. At last month's New York Fashion Week, the design house unveiled a smartwatch in a partnership with Alphabet's (GOOG, GOOGL) Google based on its bestselling analog collection. The new Dylan and Bradshaw models include features such as notification function, maps, and a voice-directed Google search facility.

All of this future promise has the potential to be encouraging for long-term investors in wearable tech stocks, but the nearer term - specifically, the upcoming holiday season - is looming even larger. Fortunately, some positive developments appear on the horizon there, too.

Shares of GoPro (NASDAQ:GPRO) climbed in the past month after the device maker revealed its upcoming line of new action cameras, including the Hero 5 Black and Hero 5 Session. In addition, the company revealed its long-awaited Karma Drone, which will sell for $800 and offers a remote and removable stabilizers that can be used with the Hero cameras.2

With the entire line also being waterproof, analysts are optimistic that customers will be prompted to upgrade. In last year's fourth quarter, GoPro sales fell 31 percent.

Meanwhile, Fitbit shares have stabilized after analysts defended the stock recently following Pacific Crest analyst Brad Erickson's suggestion that the company's new Fitbit Charge 2 fitness trackers were already piling up on retailers' shelves.3

Morgan Stanley's Jerry Liu wrote that his September checks were incrementally more positive on Charge 2, noting that retailers have given more shelf space than last year and are increasing orders for the holiday season "given strong products and less competition." Longer term, Liu noted that new opportunities in healthcare could help subsidize the company's devices and/or generate new subscription revenues.

With holiday shopping season only a month or so away, investors have appeared to become more optimistic about wearable performance. The Wearable Tech motif has increased 4 percent in the past month. In that same time, the S&P 500 has risen 1.3 percent. Over the last 12 months, the motif has gained 8.1 percent; the S&P 500 is up 10.4 percent.

1Hannah Kuchler, "The race to make wearables cool," FT.com, September 23, 2016.

2Travis Hoium, "Why GoPro Shares Popped 14% Last Month," Fool.com, October 8, 2016.

3Tiernan Ray, "Fitbit: Raymond James, Morgan Stanley Defend 'Charge 2' Demand," barrons.com, September 30, 2016.