How to Invest in Wearable Technology
Even that cartoon-strip cop Dick Tracy, with that fancy two-way wrist radio in 1946, could never have envisioned that folks would be trotting around 70 years later with digital fitness devices and miniature computers strapped around their arms.
"You don't have to look far to catch a glimpse of someone wearing the latest wearable technology, such as an Apple watch (ticker: AAPL) or Fitbit (FIT)," says Terence Pitre, an accounting professor at Saint Mary's College of California. "It's logical to wonder just how good of an investment in this technology would be."
Then again, that's not exactly an issue your tech bauble can surf the Internet to answer – not even Apple's over-the-top watch, complete with a 38 mm, 18-karat yellow gold case and bright red belt buckle that retails for $17,000. (But there's free shipping!)
No matter how many of those fly off the shelves, or waddle pretentiously, it takes a different measure to determine how watches and fitness devices in the 21st century translate to value for the companies that make them. And a good place to start is with Fitbit, which got into the game well before anyone, in 2007. Its pantheon of products, which track data including steps walked, sleep quality and heart rate, helped the company go public in June.
Apple and Fitbit are at the top of the heap. Fitbit controls almost a quarter of the wearable tech market, according to Pitre. And that slice of the pie has been mirrored by solid Wall Street performance. Since going public, Fitbit has seen its share prices jump more than 20 percent.
One appeal of Fitbit is that its products work with Android or Apple devices, whereas the Apple Watch ... well, you know the drill. "Additionally, firms like Fitbit have since added text capability and music to their products, thus rendering both models comparable in functionality," Pitre says.
Yet Apple's new gizmo, which starts at $349, hasn't been a flop, either. For the year, Apple's revenue grew an astounding 28 percent to nearly $234 billion, after its fiscal fourth quarter profit rose 31 percent. And in its earnings statement, CEO Tim Cook singled out the Apple Watch as part of the recent success.
That said, the stock bounce factor is harder to measure for behemoth companies where a watch or fitness device represents one in a large line of products. "Even if it's a hot product, they often make up a minuscule percentage of the total sales," says Will Hsu, managing partner of Mucker Capital, a venture capital firm in Los Angeles.
In fact, sales of the Apple Watch will create three to four times as much revenue as Fitbit models. But as Pitre points out, "The financial impact to Apple will barely register the proverbial blip on the radar screen. ... Investing in Apple or Samsung (SSNLF) because of their presence in the wearables market would be like buying a hamburger for the lettuce."
Looking ahead. As for taking a tasty bite of the future, "We're just beginning to scratch the surface of what's possible, says M.S. Krishnan, professor of technology and operations at the University of Michigan's Ross School of Business. "The key is going to be how relevant these applications are going to be." Krishnan predicts innovations in the health care market could arrive first – and indeed, that could be a very profitable frontier in the years ahead.
"The next big step for wearables will be a shift toward medical grade sensors for health care," says Carla Kriwet, CEO of Philips Patient Care and Monitoring Solutions "Today's devices are able to successfully track data, but this alone is not enough to improve patient outcomes and won't lead to broader, healthier changes overall – as these devices are not yet helping meet the very real medical needs of patients who would benefit most."
But there have been advances. Healthwatch Technology, for example, has come out with a shirt that employs electrodes to monitor vital signs for patients with cardiac issues and interfaces with a smartphone app. It promises to not only help hospital patients and outpatients, but also drive sales.
"The greatest benefit will be the fact vital information can be collected over time, allowing health professionals a better view into potential problems of the patient using actual data points and trends," says Eric Spackey, CEO of Bluewater Defense, a company that mass produces combat apparel and equipment for the Department of Defense.
Already seeing a top? Some experts already spot tech fatigue settling in among everyday consumers.
"We are starting to see performance degradation in favor of feature-rich devices," says TJ Dailey, national products manager at TCC, a retailer of Verizon premium wireless products. "Where is the tipping point, and when is too much connectivity too much?"
"One of the challenges with wearables is whether or not someone will actually wear it," adds Joel Evans, vice president of mobile enablement at Mobiquity, a professional services firm in the mobile and digital sectors.
So let's say you already wear a Seiko or Timex "dumbwatch" you love. Chronos is expected to release $99 smartwatch disc in the spring. "It attaches to the back of the watch you already like to wear, lasts 36 hours and brings many of the features that a traditional smart watch will bring, even responding to taps and gestures," Evans says.
But whether that propels Chronos to an initial public offering is another story. And not all wearables have caught on. Some major companies that tried wearable technology in athletic clothing have tanked, including Adidas (ADDYY) and Under Armour (UA), says Steven LeBoeuf, president and co-founder of Valencell, a provider of biometric sensor technology in fitness gear.
That said, things could get exciting over at your favorite consumer electronics store. "Be on the lookout for 'hearables,' smart wearables worn at the ear," LeBoeuf says.
Or if you prefer: Keep your ear to the ground.