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Fitbit's (NYSE: FIT) stock plunged about 70% over the past three years as its growth decelerated and competitors saturated the market. The wearables maker expects its revenue to rise just 1%-4% this year as its bottom line stays in the red.
Fitbit's dismal performance likely convinced many investors to avoid other wearable makers and stick with better-diversified players like Apple (NASDAQ: AAPL) or Garmin that sell wearables as a side business.
However, one wearables maker is still generating growth that puts Fitbit to shame: Huami (NYSE: HMI), the Chinese wearables maker that went public last February.
Image source: Amazfit.
Meet the "Fitbit of China"
Huami produces Xiaomi's (NASDAQOTH: XIACF) popular Mi Band fitness trackers, as well as its own Amazfit wearables and smartwatches. Xiaomi owns almost a fifth of Huami, and Xiaomi CEO Lei Jun owns another fifth of the company.
Xiaomi controlled 13.3% of the world's wearables market in the first quarter according to IDC, putting it in second place after Apple's 25.8% share. Fitbit, the former market leader, ranked fifth with a 5.9% share. Xiaomi's share expanded year-over-year, while Apple and Fitbit's shares declined.
Xiaomi's Mi Band devices are popular because they're much cheaper than Fitbit's comparable products. The Mi Band 3, which costs less than $30, lasts for 20 days on a single charge and sports a full-color OLED touchscreen with heart rate and activity trackers. Huami's own Amazfit smartwatches, which mainly cost $100 to $200, offer features similar to those of Fitbit's pricier Ionic and Versa watches.
How fast is Huami growing?
Huami consistently generated double-digit sales growth after its IPO in February 2018, and it's profitable by both GAAP and non-GAAP metrics. Here's how it fared over the past year.
| YOY growth | Q1 2018 | Q2 2018 | Q3 2018 | Q4 2018 | Q1 2019 |
|---|---|---|---|---|---|
| Revenue | 77% | 55% | 127% | 63% | 37% |
| Adj. net income | 818% | 58% | 93% | 69% | 3% |
YOY = Year-over-year growth. RMB terms. Source: Huami quarterly reports.
Huami's growth decelerated significantly in the first quarter, but it also faced tough year-over-year comparisons. Huami's total shipments rose 17% annually to 5.6 million, as its gross margin expanded 220 basis points to 27.2% thanks to economies of scale, supply chain improvements, and robust sales of higher-margin Amazfit devices.
Image source: Xiaomi.
For comparison, Fitbit's device shipments rose 36% annually to 2.9 million last quarter, but it faced an easy comparison to a 27% drop a year earlier. Fitbit's adjusted gross margin plunged from 47.1% to 34.2% due to its growing dependence on lower-margin smartwatches and two one-time charges from warranties and an insurance claim.