Fitbit’s filing for its initial public offering was met with a lot of excitement and rightfully so. It’s positioned to be one of the largest IPOs for the consumer health category and will increase the ongoing discussion about fitness trackers place in healthcare.
But one issue that has dogged Fitbit and other fitness trackers is doubts about long-term user engagement. Based on the S-1 filing alone, it notes, it seems like the majority of Fitbit devices sold before 2014 are no longer used, but it’s just an estimate because Fitbit falls short of providing enough data to reach a definitive conclusion.
Rock Health’s analysis of Fitbit’s IPO filing does a neat job of trying to interpret Fitbit’s paid active user numbers to reach a conclusion on the engagement question. It focuses on paid active users defined as customers who have used their Fitbit within the past three months with a Fitbit Premium or FitStar subscription; paired a tracker or scale to their Fitbit account; logged 100 steps; or logged a weight measurement.
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It subtracts the change in paid active users over a given time period from the total devices sold in the same period to try to get the most accurate measure of its success with customer retention. It concludes that more than 70% of Fitbit purchasers churn in under 12 months (using a revenue-based allocation of 2014 devices sold in Q2/Q3 2014), although its only an estimate because Fitbit’s numbers fall short of providing a more accurate picture.
It concludes:
“Engagement and repeat purchasing has not mattered in the face of a growing market. Compress the time periods analyzed down to a single quarter, and it’s clear—at least currently—that there are more customers joining than leaving. In the short term, Fitbit is well-positioned to take advantage of a trend it helped create, selling millions of devices at 50% gross margins along the way. But these engagement and retention figures are easily the most alarming numbers in the Fitbit S-1. They reveal a device and software platform that has a serious problem with retention, and a limited ability to engage customers over the long-term. In healthcare, these questions matter—wellness is a function of eating well, being physically active, and getting a good night’s sleep more days than not, over a long period of time.”
Among the ways Fitbit has courted new users are an advertising campaign and employer wellness. It points out that Fitbit courted the employer wellness market relatively early for a fitness tracking company (2010), although it’s tough to assess how effective this category has been for the business.
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It also connects Fitbit’s spike in retail sales of its devices with a big investment in advertising last year ($71 million) during the NFL Playoffs and on Virgin Atlantic.
