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TEACHING NOTE
CASE 7
Fitbit, Inc.: Has The Company
Outgrown Its Strategy?
Overview
Fitbit revolutionized the personal fitness activity in 2009 with the introduction of its Tracker wearable
activity monitor. By 2016 the company was a hit in the marketplace with Fitbit devices becoming nearly
ubiquitous with fitness enthusiasts and health-conscious individuals wearing the devices and checking
them throughout the day. The company’s sales of activity monitors had increased from 5,000 units that year to
21.4 million connected health and fitness devices by year-end 2015. The company executed a successful IPO
Suggestions for Using the Case
The Fitbit case should generate considerable student interest and provoke a lively, interesting class discussion
of whether the company’s strategy will allow for sustainable financial performance and competitive advantage.
The case is best assigned after you have covered Chapters 1-5 and is a good case for drilling students in (1)
applying the tools of analysis covered in Chapters 3 and 4, (2) identifying and evaluating a company’s strategy,
and (3) identifying strategic issues/problems that merit top management attention and then proposing action
recommendations to resolve these issues/problems. The case provides an opportunity for class members to
evaluate industry and competitive conditions, evaluate the caliber of the company’s strategy, think strategically
about Fitbit’s internal situation, crunch some numbers in the financial exhibits, and make action recommendations
regarding its future course of action.
Videos for Use with the Fitbit case. There are two videos that you can show in class (or have students view
on their own):
*This teaching note reflects the thinking and analysis of the case authors, Professor Rochelle R. Brunson and Professor Marlene
M. Reed, both of Baylor University. We are most grateful for their insight, analysis and contributions to how the case can be taught
successfully.
*
Case 7 Teaching Note Fitbit, Inc.: Has The CompanyOutgrown Its Strategy?
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Links to the two videos are also posted in the instructor resources section of the Connect Library.
One option is to show either or both videos right before you ask the class for action recommendations, but you
can also show them at the beginning of the class period if you prefer.
To facilitate your use of assignment questions and making them available to students, we have posted a file
of the Assignment Questions contained in the instructor resources section of the Connect Library for the 21st
Edition.
Utilizing the Guide to Case Analysis. If this is your first assigned case, you may find it beneficial to have
class members read the Guide to Case Analysis that follows Case 31. The content of this Guide is particularly
helpful to students if your course is their first experience with cases and they are unsure about the mechanics of
how to prepare a case for class discussion, oral presentation, or written analysis.
Suggested Assignment Questions for an Oral Team Presentation or Written Case Analysis. We
believe the Fitbit case is quite well-suited for written assignments and/or oral team presentations. Our suggested
assignment questions are as follows:
Fitbit Inc. CEO James Park has employed you as a consultant to assess the company’s overall situation and
recommend a set of actions to improve the company’s future prospects. Please prepare a report to Mr. Park
Prepare a brief report to Fitbit management outlining the 3-4 top priority issues confronting the company
and its prospects for long-term competitive success. Your report should also include a discussion of actions
you believe must initiated to address these issues and strengthen the company’s competitive position and
Assignment Questions
1. What is competition like in the activity tracking industry? How strong is the competitive strength of buyers
and suppliers? New entrants and substitute products? Rivalry among competing sellers? Prepare a Five
Forces Model of Competition to support your conclusions.
2. How would you best describe Fitbit’s competitive strategy?
3. Perform a SWOT analysis for Fitbit. What are the company’s primary strengths and weaknesses? What
external opportunities and threats exist?
Case 7 Teaching Note Fitbit, Inc.: Has The CompanyOutgrown Its Strategy?
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4. Analyze the company’s financial performance. Do trends suggest that its strategy is working?
5. What recommendations would you make to Fitbit management to address the most important strategic
issues facing the company?
Teaching Outline and Analysis
1. What is competition like in the activity tracking industry? How strong is the competitive
strength of buyers and suppliers? New entrants and substitute products? Rivalry among
competing sellers? Prepare a Five Forces Model of Competition to support your conclusions.
Competitive pressures coming from the
market attempts of outsiders to win
buyers over to their products
Substitutes for
Activity Tracking
Devices
Potential New
Entrants into the
Activity Tracking
Device Industry
Competitive Strength of Suppliers
Since most of Fitbit’s production occurs in China, there is a concern that delays in manufacturing and/or
Case 7 Teaching Note Fitbit, Inc.: Has The CompanyOutgrown Its Strategy?
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the capability of containing the activity tracking device within them. That would make it unnecessary to buy
the Fitbit when one is able to secure the same benefits from a different product.
Threat of Potential Entry Into the Industry
The activity tracking industry would appear to be somewhere in the late introduction or early growth stage
of the product life cycle. Support for that theory is the following:
The industry is still in its infancy since the first Fitbit model was introduced in 2007. Therefore, Fitbit
was the “first mover” in this industry.
The perceived potential for further growth in the health care industry suggests additional growth is possible
in the future. this is a serious threat since Fitbit and Apple have made a great deal of money from their
producing undergarments for men). There are also companies such as Apply who produce smart watches
that perform many of the same tasks as Fitbit’s devices. Another company entering the market late was
Jawbone. This company was formed in 1999, and its consumer devices were Bluetooth headphones and
speakers initially and later fitness trackers. With the increased competition in the activity tracking industry
in 2015, Jawbone dropped to seventh place in the second quarter from fifth place in the first quarter among
makers of wearable tracking devices. Xiaomi, a Chinese company, shipped 12 million wearable activity
Case 7 Teaching Note Fitbit, Inc.: Has The CompanyOutgrown Its Strategy?
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2. How would you best describe Fitbit’s competitive strategy?
Students are likely to have mixed assessments of Fitbit’s competitive strategy. The company has chosen to
differentiate its features from lesser priced brands of activity trackers, but still maintain a deep discount over
multi-feature smart products such as the Apple Watch.
3. Perform a SWOT analysis for Fitbit. What are the company’s primary strengths and
weaknesses? What external opportunities and threats exist?
Internal Resource Strength and Competitive Capabilities
Early entrant into the market
Low cost leader in activity tracking devices
Internal Weaknesses and Competitive Deficiencies
Wall Street analysts began downgrading the stock in early 2016
Considered by some as a “one product company”
External Market Opportunities
Integration of new uses of activity tracking device
External Threats to the Company’s Well-Being
Oversaturation of the market by the industry leaders
New entrants into the industry
Case 7 Teaching Note Fitbit, Inc.: Has The CompanyOutgrown Its Strategy?
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4. Analyze the company’s financial performance. Do trends suggest that it’s strategy is
working?
Table 1 below illustrates that Fitbit’s profitability declined between 2014 and 2015, with operating profits
decreasing from 21% in 2014 to 19% in 2015. Net profit margin has been cut in half going from 18% in 2014
to 9% in 2015. Total return on assets and net return on assets has also declined from 21% in 2014 to 12% in
2015. Liquidity ratios such as the current ratio has declined but the working capital has improved over the
past year. Leverage ratios have also improved.
TABLE 1. Select Financial Ratios for Fitbit Inc., 2014-2015
2015 2014
Profitability Ratio
Liquidity Ratios
Current Ratio 2.67 1.22
Working Capital $847,097 $101,860
Leverage Ratio
However, analysis of case Exhibit 5 discloses the following:
Revenue increased 2.49 times;
Gross profit increased 2.51 times;
Analysis of the company’s balance sheet in case Exhibit 6 shows:
Cash and cash equivalents increased 2.79 times;
Total current assets increased 2.41 times;
Case 7 Teaching Note Fitbit, Inc.: Has The CompanyOutgrown Its Strategy?
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Full-year 2015 Financial Highlights were shown in the filing as follows:
Sold 21.4 million connected health and fitness devices.
Fitbit announced in the filing that it expected full-year 2016 revenue to be in the range of $2.4 to $2.5 billion
which would be driven by the introduction of new products and expansion into new geographic territories.
5. What recommendations would you make to Fitbit management to address the most
important strategic issues facing the company?
After the 20 percent drop in the price of Fitbit stock late in February 2016, a number of Wall Street analysts
gave their assessments of future movements of the company’s stock. An analyst with Global Equities
Research, Trip Chowdry, suggested that he believed the stock could fall another 50 percent. He speculated,
“Gradually the market for single-purpose devices (fitness tracker) is heading toward zero, and there is
nothing FIT can do to reverse the trend.”10 In addition, Chowdry commented that unlike Apple, Inc., Fitbit
Pacific Coast analysts downgraded the company’s stock to sector weight from overweight because of
expected weakness in sales in the coming year, and the limitation it has in differentiating its products. The
Pacific Coast analysts suggested, “We do not expect any incrementally competitive product announcements
Updated technology to ensure accurate energy expenditure prediction algorithm to correctly estimate
energy expended by user.
Continue to work on the past problems such as further development of the antenna to overcome the
earlier problems.
Epilogue
Fitbit revenues increased to $2.17 billion in 2016, compared to $1.86 billion in 2015. Also, the company’s
number of registered device users increased to 50.2 million in 2016 from 29.0 million in 2015, However, its
margins continued to decline and it recorded a net loss of $25.9 million for the year. A summary of its 2015 and
2016 financial performance is presented below:
Fourth Quarter and Full Year 2016Financial Summary
Year Ended
In millions, except percentages and per share amounts
December 31, 2015 December 31, 2016
GAAP Results
Gross Margin 48.5% 39.0%
Net Income (Loss) $175.7 $(102.8)
Net Income (Loss) Per Share $0.75 $(0.47)
Non-GAAP Results
Gross Margin 48.5% 39.3%
Net Income (Loss) $254.1 $(25.9)
Net Income (Loss) Per Share $1.07 $(0.12)
Source: “Fitbit reports $574M Q416 and $2.17B FY16 revenue, sells 6.5M devices in Q416 and 22.3M devices
in FY16,” Business Wire, February 22, 2017.
