How Fitbit's Smartwatch Looks to Pump Up the Business

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Fitness tracker company Fitbit (NYSE: FIT) announced its long-anticipated Ionic smartwatch at the end of August. While Fitbit's stock has seen a positive bump since the announcement, it is still down more than 50% over the past 12 months.

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The smartwatch has an app gallery, enhanced coaching features, and a huge community of users that could be a catalyst for additional revenue growth. Read on to see how these features could benefit Fitbit investors.

Fitbit makes things easier for developers

In early August, Fitbit CEO James Park said that the  smartwatch would release with an app "gallery" with a "select number" of partners. Now that the smartwatch has been released, you will find it has popular functions and apps from companies including Pandora, Starbucks, Accuweather, and Strava, which is a social network for athletes. And this is just the start.

In that early August call with analysts, Park talked about the Ionic's powerful software developer kit (SDK), which is a set of tools that enables programmers to create smartwatch apps. Park explained that when the company worked with UnitedHealth Group to create the Motion program for its members, it didn't have this SDK capability, and the effort to develop was considerable from both Fitbit and United Health. Having the app gallery and SDK will aid development of more health-focused apps in partnership with insurers or medical device manufacturers -- like the recently announced partnership with Dexcom -- and should drive incremental revenue.

Coach Ionic inspires individuals

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Fitbit's mission starts with, "To empower and inspire you to live a healthier, more active life." Fitbit reported in May 2017 that it had sold 63 million devices and had more than 50 million registered device users. Management has said that a smartwatch with coaching features could expand its user base by 40 million to 80 million people.  The Ionic is just this device.

Fitstar, which is Fitbit's subscription-based fitness app, finally has a device that will make its features easier to use, be more accessible to more people, and have more specific coaching programs to attract users. The culmination of these benefits is rolled into a personalized app called Fitbit Coach and will be released in the fall. The Fitbit Coach personal training app will have introductory pricing of $7.99 per month or $39.99 per year. 

With Fitbit Coach, users will have workouts displayed on the device, running and walking audio coaching, and app-adjusted workouts based on their feedback. Coming in 2018, Ionic will allow you to access adidas coaching expertise. These coaching features should allow Fitbit to expand its addressable market and drive additional recurring subscription revenue through its premium apps.

Community engagement could attract corporations

While the Ionic smartwatch doesn't enhance Fitbit's community features, it should attract new users and grow the overall Fitbit community. Having a large and active community attracts individual users and should also entice corporations hoping to reduce healthcare costs by giving employees Fitbits. Fitbit's corporate wellness programs accounted for less than 10% of overall revenue in 2016, but they could be a growth driver in the future and the Ionic community could be a selling point for corporations hoping to save money on healthcare.

When someone buys a Fitbit device, access to the community and its features automatically comes along with it. Fitbit only releases its user community numbers annually, and at the end of 2016, the company had 23.2 million active users. This large user base makes it more likely that a friend or relative may already be on the platform, so the new Fitbit user may be able to engage with someone they know. Park said the community features benefit users by "building healthy habits, [enabling] friendly competition and curating a supportive and positive environment."

 

Fitbit Ionic smartwatch coaching features help Fitbit add incremental recurring revenue and expand its total addressable market. The app gallery and growing user community should boost partnerships with health-related companies. These are the new Ionic smartwatch features that investors should love.

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Brian Withers owns shares of Fitbit. The Motley Fool owns shares of and recommends Fitbit. The Motley Fool recommends UnitedHealth Group. The Motley Fool has a disclosure policy.