Fitbit's Real Reason to Partner With Adidas
Fitness tracker company Fitbit (NYSE: FIT) announced a partnership with adidas (NASDAQOTH: ADDYY) as part of its Ionic smartwatch launch in September, promising a device and training programs next year that enhance Fitbit's personalized coaching software with adidas' expertise. While that seems like a no-brainer, the bigger reason behind Fitbit's desire to partner with adidas is related to China. Quite simply, adidas has been successful in China, and Fitbit hasn't.
Fitbit management doesn't mention China on its earnings calls or in its financial filings unless an analyst asks a question about the region. The most recent mention of China on an earnings call was in the final quarter of 2016 when James Park, Fitbit's CEO, said "...we have yet to gain much traction in large markets like China..."
Fitbit includes its revenue for the Chinese market in its Asia Pacific (APAC) region. In the second quarter, despite growing at 46% year-over-year, the region totaled a mere $21 million, or 5.9% of total revenue. Half of the APAC revenue comes from Australia, so China revenue contribution is small in comparison to the opportunity, and investors are not even sure how small it really is.
The challenge for Fitbit in China is that it is stuck between a popular low-cost tracker manufacturing company, Xiaomi, and high-end smartwatch maker Apple. Xiaomi is located in China and its trackers are priced in the $25 range, which makes even Fitbit's entry model for $59 look high-priced. At the high end, Fitbit is hard-pressed to compete with Apple's monster brand power that generated $48 billion from the greater China region in its fiscal 2016.
Source: Fool.com
