Fitbit made its S1 filing coming off a quarter of astounding growth: $336.8M in revenue – up from $108.8M in Q1 2014. The enterprise generated $48M in net income. Last week we learned it hopes to raise $100M through an IPO. Why would Fitbit IPO now?
There are any number of traditional reasons - raise capital, return money to investors, etc. But what is interesting to debate, however, is the timing of Fitbit’s IPO. Fitbit may have chosen to IPO now so it can:
Draft off Apple’s wave. Fitness bands and smart watches have been on the market for years, but sales have been limited – especially for smart watches. Apple’s entry and marketing spend will drive awareness of the category from early adopters on the west coast to mainstream consumers. The tide will lift all boats, as the saying goes.
Raise capital at a possible peak. The smart watch may kill off or stymy the growth of lower end fitness bands. The cameras on early mobile phones were not as good as the digital point and shoot cameras or SLR’s owned by consumers, but a camera on hand is better than the one at home in a drawer or closet. The pedometer and sensors on a smart watch may not measure activity with the same precision as a dedicated device, but it may be good enough for many consumers.
Take advantage of a market with few IPO candidates. Few small companies will mature enough – let alone show the financial strength – to take their companies public. Many entrepreneurs are building services that make great features rather than great businesses. Their exit strategy is to sell to a Google, Facebook, Salesforce.com, IBM, Oracle, Microsoft, or SAP.
A media frenzy arose last night when the Financial Times suggested it had word from the inside that Apple is closing in on buying Beats Electronics for $3.2 billion. The immediate response from all quarters has been puzzlement and on multiple levels. As the sun rose today, so did the doubts about the impending deal. Generally, large strategic acquisitions — like when Google bought Nest for a similar figure — can be justified on the basis of buying something you don’t already have: a promising new technology, a large customer base, or entrée into a desirable industry. None of these things apply to this acquisition by Apple. Acquisitions at a more mature business stage can typically be justified purely on a revenue or margin basis or the desire to snap up a brand with more energy. Those don’t apply here, either. Even those who have tried to stretch the argument a bit have suggested that Apple could be buying Beats purely for a quick road into the music streaming business as a hedge against Spotify — except that Apple owns the music industry and doesn’t need Beats to build the music streaming offering that the company has denied for years that it should even consider getting into.