ADDRESS 405 HOWARD STREET

SAN FRANCISCO, CA 94105

WEBSITE WWW.FITBIT.COM

SECTOR ACTIVITY TRACKER

INDUSTRY CONSUMER ELECTRONICS

TABLE OF CONTENTS

I. Introduction

Summary.………………………………………………………………………………………………………………………………………………………………………

… 3

Company History

II. External Analysis…………............................................................................................................................................................................................ 5

Industry Overview

Porter’s Five Forces

III. Internal Analysis…...................................................................................................................................................................................................... 8

Most Important Executives

Product Diversification

Patents

Other Resources and Competencies

IV. Financial Analysis..................................................................................................................................................................................................... 13

Rising Revenue

3 Year Projection

Operating Analysis

Stock Analysis

V. Recommendation...................................................................................................................................................................................................... 18

Selling Fitbit

Increasing Spending on R&D

Smart Watch & More Features

INTRODUCTION

SUMMARY

3

4

INTRODUCTION SUMMARY: COMPANY HISTORY

Jul 2007:

Inspired by the advances in

sensors and wireless technology,

Eric Friedman and James Park

created Healthy Metrics

Research Inc.

“Where does Fitbit go from here?”

Sep 2009:

Fitbit launched its first

product, the Fitbit for $99.

Oct 2011:

Launched its first iPhone

app, Fitbit Ultra. The app

measures vertical steps with

a built-in altimeter.

Jun 2012:

Fitbit went international and

released new products such as

Aria Scale, Fitbit One, and Fitbit

Zip.

May 2015:

Fitbit’s IPO valued at $4.3

billion.

29 million

devices sold34% of market share 45,000 retail stores 50 countries

15 million

registered users

SOURCES: DMR STATS, WIKIPEDIA, MOBILE HEALTH NEWS

EXTERNAL

ANALYSIS

5

EXTERNAL ANALYSIS: INDUSTRY OVERVIEW

SOURCES: WALL STREET JOURNAL, MORNINGSTAR, THE FEDERAL RESERVE BANK, SEC, MORNINGSTAR

18.8%

13.5%

39.6%

12.9%

15.3%

0% 10% 20% 30% 40% 50%

0- 14 Years

15- 24 Years

25- 54 Years

55- 64 Years

65 and Over

2015 POPULATION AGES DISTRIBUTION (U.S.)

CURRENT STATE

• Activity tracker is a sub-set of the Industry Consumer Electronics.

• Activity tracking is a relatively young innovation, emerging in the late1980s and comping to prominence in the late 1990s and mid 2000s.

• Substitution has become a greater challenge to industry participants

than competition.

• Industry is reaching a mature stage, in which the growth has slowed

down and not everybody is guaranteed success.

• The current owners of wearable devices are young, with nearly half

(48%) between 18-34 years old.

6

Activity Tracker

Wearable Stationary

ACTIVITY TRACKER INDUSTRY SUMMARY CHART

MAJOR ACTIVITY TRACKING PLAYERS

• American. Launched in 1989.

• Operates internationally.

• Offers wide range of consumer electronics.

• Launched in California during 1999.

• Solely domestic operations.

• Early member of activity tracking industry

• Launched in 1984. Largely American operations.

• Acquired smaller activity tracker companies,

including Misfit.

7

EXTERNAL ANALYSIS: PORTER FIVE FORCES

INTENSITY OF RIVALRY

(HIGH)

THREATS OF NEW ENTRY

(MEDIUM)

THREAT OF SUBSTITUTION

(HIGH)

• Industry growth has seen reductions in

growth, with some predicting a decline .

• The number of competitors is slowly

decreasing, intensifying rivalry.

• Differentiation also continues to reduce in

some facets, and prices have become

accordingly competitive.

• The activity tracker industry competes

against smartwatches, smartphones, and the

more traditional pedometer.

• Switching costs are low or nonexistent.

• Smartphones and smartwatches continue to

become more popular and offer increasingly

identical functions as activity trackers, in

addition to the wide variety of functions

already performed by these devices.

• Barriers to entry are prevalent in this industry

• In order to manufacture goods, significant

capital is needed, both monetary and human;

access to distribution channels is a necessity

.

• Product differentiation is relatively important,

and customer loyalty does exist for several

members of the activity tracker industry.

• Government policy can limit claims of product

attributes.

SOURCES: WALL STREET JOURNAL, BARRONS

BUYERS POWER (HIGH)

• Switching costs are low or non existent.

• Customers have shown willingness, and even preference, for purchasing

substitutes.

• Industry sales are heavily reliant upon retail sales, increasing the power

of individual consumers.

SUPPLIER POWER (MEDIUM)

• Suppliers’ goods are critical to necessary manufacturing components,

but raw materials are widely available and occasionally substitutable.

• Component quality is generally less valued than device function, though

it is still important to consumers.

INTERNAL

ANALYSIS

8

9

INTERNAL ANALYSIS: MOST IMPORTANT EXECUTIVES

JAMES PARK

(CEO)

ERIC FRIEDMAN

(CTO)

WILLIAM ZERELLA

(CFO)

EDWARD SCAL

(CRO)

ANDY MISSAN

• CEO and Co-Founder.

• Earlier in his career he worked for CNET and Morgan Stanley.

• Attended Harvard for Computer Science but dropped out.

• CTO and Co-founder.

• Previously worked at CNET and Epsei Technologies.

• Graduated from Yale with a degree in Computer Science.

• CFO of Fitbit since 2014.

• Worked as CFO of other publicly traded companies such as Vocera Communications.

• Graduated from New York University.

• Has served as Chief Revenue Officer since 2010.

• Before Fitbit, he worked at Avanti Growth Partners, a private equity and consulting firm.

• Graduated from the Stanford Business School.

• VP of General Counsel since 2013.

• Served as VP for other Tech Firms as well as Senior Legal Counsel at Sony.

• Graduated from Northwestern University School of Law.

SOURCES: THE MOTLEY FOOL

10

INTERNAL ANALYSIS: PRODUCT DIVERSIFICATION

Zip One Flex 2 Alta Charge 2 Blaze Surge

$49.99 $79.99 $79.99 $129.99 $129.99 $159.99 $199.99

Steps, Calories

Clock

Sleep Tracking

Alarm

Active Minutes

Multi Sport

Continuous Heart Rate

Text/ Call Notification

Music Control

GPS Tracking

Swim-proof

SOURCES: FITBIT

11

INTERNAL ANALYSIS: PATENTS

SOURCES: GOOGLE PATENTS

DESCRIPTION PICTURE

• Provides a wearable fitness monitoring device which

includes a photoplethysmograhphic sensor.

• Allows the device to measure one or more characteristics of

a heartbeat waveform.

• Combines two types of data collection to increase accuracy

of GPS travel distance and location.

• Takes into account steps and length of strides of individual

as well as GPS coordinates.

• Provides more accurate step count for user.

• Reduces GPS power for increased battery life.

PATENT

Wearable Heart

Rate Monitor

GPS Accuracy

Refinement

& GPS Battery

Usage

Reduction

Sedentary

Period Detection

• Provides an advanced method of determining sedentary

state of the user(inactivity).

• Measures Metabolic Equivalent of Task (MET).

• If MET exceeds a determined threshold value, the user is

deemed sedentary.

12

INTERNAL ANALYSIS: OTHER RESOURCES AND COMPETENCIES

SOURCES: SMART COMPANY

DESCRIPTION COMPETENCIES

• Provides an international recognition

• Is known for reliable products

• An edge on their competition

• Direct to consumers from online website

• Diverse retailers such as Costco, BestBuy and Wal Mart

• Sells directly to companies with corporate wellness

programs.

• Costly to imitate

• Rare

• Valuable

RESOURCES

Brand

Recognition

Business Model

• Not a Competency

• Other Companies use same model

• Has led to Strong Year over Year positive revenue growth

First Mover

Advantage

• First to Introduce Wearable Fitness Devices

• Captures loyalty customers from the beginning

• Possesses Patented Technology

• Has a strong loyal consumers base

• Can set the trend within the industry

FINANCIAL

ANALYSIS

13

14SOURCES: FITBIT

FINANCIAL ANALYSIS: RISING REVENUE

Q3 REVENUE GROWTH

YTD REVENUE GROWTH

$409.3

$503.8

$0

$100

$200

$300

$400

$500

$600

Q3' 2015 Q3' 2016

$1,146.4

$1,595.7

$0

$300

$600

$900

$1,200

$1,500

$1,800

9 Months' 2015 9 Months' 2016

23% Increase

39% Increase

REVENUE ANALYSIS

DEVICES SOLD (M)

2.3

5.3

3.94.5 4.8

8.3

4.8

5.7

5.3

Mar-14 Sep-14 Mar-15 Sep-15 Mar-16

• Revenue surged of 23% in Q3 revenue. Consumer demand typically

the weakest in Q3 .

• U.S. Growth up 33%, EMEA growth up 64%, APAC growth down 44%.

• New products comprised of 79% revenue.

• 40% of activation of new products came from repeat customers.

Millions

Millions

15SOURCES: FITBIT

FINANCIAL ANALYSIS: 3 YEARS PROJECTION

($ in millions) 2013A 2014A 2015A 2016E 2017E 2018E

Revenue 271.1 745.4 1,858.0 2,415.4 2,898.5 3,188.3

YoY (%) Growth 275% 249% 30% 20% 10%

Cost of Goods Sold 210.8 387.8 956.9 1,207.7 1,420.3 1,530.4

Gross Profit 60.3 357.6 901.1 1,207.7 1,478.2 1,657.9

Sales/ General/ Admin Exp. 41.3 145.6 410.5 483.1 579.7 637.7

Research & Development 27.9 54.2 150.0 193.2 231.9 255.1

EBIT (8.9) 157.8 340.6 531.4 666.7 765.2

Income Tax 37.9 8.0 112.3 159.4 200.0 229.6

Net Income (46.8) 149.8 228.3 372.0 466.7 535.6

$0

$500

$1,000

$1,500

$2,000

$2,500

$3,000

$3,500

2013A 2014A 2015A 2016E 2017E 2018E

REVENUE GROWTH PROJECTION

-$100

$0

$100

$200

$300

$400

$500

$600

$700

2013A 2014A 2015A 2016E 2017E 2018E

EBIT GROWTH PROJECTION

Millions Millions

16SOURCES: FITBIT

FINANCIAL ANALYSIS: OPERATING ANALYSIS

GROWING RESEARCH & DEVELOPMENT SALES BY REGION (2015)

77.2%

17.5%

5.3%

U.S.

EMEA

APAC

15.0%

4.0%

2.0%

1.0%

1.0%

14%

16%

18%

20%

22%

24%

Margin FY'2015 Simplification Supply Chain International Margin Services & Distribution Margin FY'2020

IMPROVING OPERATING MARGINS

23%

9.0 11.6 14.1 17.1 20.527.4

37.0

46.9

61.9 63.370.7

0

20

40

60

80

Mar-14 Sep-14 Mar-15 Sep-15 Mar-16 Sep-16

Millions

17SOURCES: FITBIT, STANDARD & POOR’S

FINANCIAL ANALYSIS: STOCK ANALYSIS

Ticker Company Name Price Market Cap (B) EPS P/E P/B

FIT Fitbit Inc. $8.71 $1.94 $0.50 $17.42 $1.76

DBD Diebold Inc. $21.20 $1.38 $1.43 $14.83 $2.36

FLIR FLIR Systems Inc. $31.93 $4.38 $1.59 $20.08 $2.59

GRMN Garmin Ltd. $47.01 $9.31 $2.67 $17.61 $2.62

Average $4.25 $1.55 $17.49 $2.33

Analyst Recommendations Current 1 Wk Ago 4 Wks Ago 8 Wks Ago 13 Wks Ago

Buy 5 5 5 5 5

Outperform 7 7 7 7 7

Hold 9 9 10 10 10

Underperform 1 1 0 0 0

Strong Sell 0 0 0 0 0

Mean Rating 2.3 2.3 2.2 2.2 2.2

-80.0%

-60.0%

-40.0%

-20.0%

0.0%

20.0%

40.0%

60.0%

80.0%

Dec-13 Jun-14 Dec-14 Jun-15 Dec-15 Jun-16

S&P Information Technology

S&P Electronic Equipment Manufacturers

Fitbit

Revenue Q1 Q2 Q3 Q4 Annual

2016 505.4 586.5 503.8 -- --

2015 336.8 400.4 409.3 711.6 1,858

2014 108.8 113.6 152.9 370.2 745.4

EPS Q1 Q2 Q3 Q4 Annual

2016 0.05 0.03 0.18 0.76 1.16

2015 0.25 0.07 0.19 0.26 0.75

2014 0.04 0.07 0.34 0.19 0.63

RECOMMENDATIO

N

18

19

RECOMMENDATION: SELLING FITBIT

Traditional Fitbit

• Declining demand

• Positive cash flow

• Global scale

Traditional

Retail Market

• Continue cash generation

• Global expansion

• Mitigate volatility

• Faster growth

• Expanding margins

• Higher recurring

revenue

Enterprise

Solution and

Services

“New Fitbit”• Outpace market growth

• Leverage footprints

• Integrated offerings

Characteristic Fitbit Strategy

20

RECOMMENDATION: SELLING FITBIT (CONT.)

SOURCES: MORGAN STANLEY, PITCHBOOK

$0

$10

$20

$30

$40

$50

$60

Jun-15 Oct-15 Feb-16 Jun-16 Oct-16 Feb-17 Jun-17

Shares Volume

Stock Prices

$32.0 (+370%)

$19.5 (+226%)

$8.64

$5.0 (-57%)

POTENTIAL BUYERS

Private Equity

Healthcare

Technology

Financial Summary

Share Price $8.41

Market Cap $1,900M

Cash $284.2M

Accounts Receivable $468.5M

Total Debt 0

2014A 2015A 2016E 2017E 2018E

Revenue Growth 275% 249% 30% 20% 10%

Gross Profit Margin 48.0% 48.5% 50.0% 51.0% 52.0%

Net Income Margin 20.1% 12.3% 15.4% 16.1% 16.8%

21

RECOMMENDATION: INCREASE SPENDING ON R&D AND S&M

SOURCES: FITBIT

RESEARCH & DEVELOPMENT

R&D SPENDING S&M SPENDING

$37.0

$70.7

$0

$20

$40

$60

$80

Jan-15 Jan-16

91% Increase

SALES & MARKETING

$62.7

$76.8

$0

$20

$40

$60

$80

$100

Jan-15 Jan-16

23% Increase

• There is a strong positive correlation between sales and marketing

expense and sales revenue at Fitbit

• Fitbit planned on expanding its oversea business through increase

S&M spending. Launching media campaigns around the world is

expected to driver higher sales and marketing expense.

• The 4th Quarter S&M expense is going to rise preparing for the

Christmas Holiday Season.

• In the long term, Fitbit hope to set the marketing expense to be at 15%

of revenues on average.

• Driven by innovations, Fitbit has continuously reaped its benefits

through the rising sales.

• One third of Fitbit sales figures come from one third of repeat

customers. This illustrates the importance of upgrading the devices.

• It is essential for Fitbit to keep investing to outpace the growth of large

competitors such as Apple with market cap of $578B or Garmin with

market cap of $9.7B.

• R&D should be spent toward not only hardware improvements but

also software.

22

RECOMMENDATION: SMART WATCH & MORE FEATURES

0%

5%

10%

15%

20%

25%

30%

$100 orLess

$101 to$200

$201 to$300

$301 to400

$401 to500

$501 to600

Over $600

SOURCES: MORGAN STANLEY

PRICING STRATEGY

Apple Watch starts

at $349

ONGOING ACQUISITION

• Target price from $34-$40

million.

• Pebble has sold over 400,000

watches with over $60M

revenue since Jan 2013.

• A great mesh with Fitbit for

revenue, cost synergies and

the patents.

39.0%

38.0%

32.0%

31.0%

28.5%

28.0%

0% 10% 20% 30% 40% 50%

More Sensors

More Comfortable

Greater Computing Power

More Accurate Reliable Data

Improve Design

More Discrete

FEATURES THAT WOULD INCREASE USAGE