FITBIT, INC.

Corporate Analysis

Selma iga
New York University Abu Dhabi
Corporate Finance
Contents
Introduction and Mission Statement .......................................................................................... 2

Management ............................................................................................................................... 3

Board of Directors...................................................................................................................... 5

Stockholders............................................................................................................................... 8

Risk & Return, Cost of Capital, Capital Structure and Valuation ............................................. 9

References ................................................................................................................................ 13

1
Introduction and Mission Statement
Fitbit is a consumer electronics company that helps people lead healthier, more active lives
by empowering them with data, inspiration and guidance to reach their goals. (Fitbit, Inc.) It
was created in March 2007 by James Park and Eric Friedman, who currently serve as the
companys Chief Executive Officer (CEO) and Chief Technology Officer (CTO),
respectively. Their platform combines health and fitness devices with software and services
to help people become more active, exercise more, sleep better, eat smarter, and manage their
weight. (Fitbit, Inc.)

Their Class A common stock has been listed under the symbol FIT on New York Stock
Exchange after their Initial Public Offering of 20.00$ per share on June 18th, 2015. (Fitbit,
Inc.)

2
Management
Fitbits management team consists of seven officers, two of whom are Co-Founders, James
Park and Eric Friedman, and serve as the Chief Executive Officer (CEO) and Chief
Technology Officer (CTO), respectively. The rest are as follows:

Chief Financial Officer (CFO) William Zerella,

VP & General Counsel Andy Missan,
VP of Interactive Timothy Roberts,
Chief Business Officer Edward Scal,
VP of Global Marketing Officer Tim Rosa.

Fitbits CEO and Co-Founder James Park had previously serves as the Director of Product
Development at CNET Networks, as the President and Co-Founder of Wind-Up Labs, Inc., a
company that specialized in online photo-sharing before it was acquired by CNET Networks
in April 2005), as well as the CTO and Co-Founder of Epesi Technologies, Inc., a software
company. (Fitbit, Inc.) He attended Harvard College where he studied Computer Science.

Eric Friedman, the CTO and Co-Founder, has only recently acquired the position of the CTO,
but has been sitting on the Board of Directors since the start in March 2007. (Fitbit, Inc.) He
used to hold the position of Engineer Manager at CNET Networks, as he was a Co-Founder
of Wind-Up Labs, Inc. and was a funding engineer at Epesi Technologies, at all of which
James Park had previously worked. (Fitbit, Inc.) He was also a technical member of the
Real-Time Collaboration Group at Microsoft Corporation. (Fitbit, Inc.) He attended Yale
University, where he completed his Bachelors and Masters degrees in Computer Science.

Chief Financial Officer, William Zerella, had not previously worked with the two Co-
Founders, but his career was no less fruitful. He served as the CFO of Vocera
Communications, Inc, a company he took public in 2012. (Fitbit, Inc.) Prior to his position
at Vocera, William served as CFO at Force10 Networks, Infinera Corporation and Celient
Networks. (Fitbit, Inc.) He attended the New York Institute of Technology where he got his
BS in Accounting, as well as Leonard N. Stern School of Business at NYU, where he got his
MBA. (Fitbit, Inc.)

3
Andy Missan, VP & General Counsel has held his positions at Fitbit, Inc. since March 2013.
(Fitbit, Inc.) Previously, he has served as VP & General Counsel at Bytemobile, Inc,
MobiTV, Danger and Replay TV. (Fitbit, Inc.) He got his BA in Government from Oberin
College, an attended the Northwestern University School of Law for his JD. (Fitbit, Inc.)

VP of Interactive, Timothy Roberts has been at Fitbit, Inc. since September 2010. (Fitbit,
Inc.) Prior, he worked at Infectious, Odeo, Yahoo!, Bigstep.com and T/Maker Company.
(Fitbit, Inc.) He attended Vassar College, where he graduated with a degree in Psychology.
(Fitbit, Inc.)

Edward Scal became the Chief Business Officer of Fitbit, Inc. in October 2010. (Fitbit, Inc.)
He had held numerous positions previously, including being a partner at Avanti Growth
Partners, Executive VP and a member of the Board of Directors at CamelBak Products,
Senior VP at Kransco Partners, Director of Business Development at Kransco Group
Companies, Director of Development at Visa International, Product Manager at General
Mills, and as an analyst at Cambridge Associates. (Fitbit, Inc.) He holds a degree in History
from Williams College and an MBA from Stanford Business School. (Fitbit, Inc.)

Last but not the least, Tim Rosa, VP of Global Marketing was previously VP of Global Brand
Development at Electronic Arts, VP of Marketing at DivX where he lead the company into
acquisition, and had also increased NBA 2K market share from 10% to 80% in five years.
(Fitbit, Inc.) He attended University of Michigan Flint. (Fitbit, Inc.)

Apart from the two Co-Founders, CEO James Park and CTO Eric Friedman, no other
members of the board seem to have worked with each other previous to joining Fitbit, Inc.

4
Board of Directors
Serving as the Chairman is the companys Co-Founder and CEO, James Park. Another
director who also serves as a part of the management team is the Co-Founder and CTO, Eric
Friedman. Apart from the two mentioned, there are five independent directors, making a
total of seven.

According to Fitbit, Inc.s rules, the board does not require separation of the CEO and the
Chairperson, however, it does require that the majority of the board be constituted of
independent directors. (Fitbit, Inc.) The Board is required to have at least four annual
meetings, however there are no restrictions on the number of terms a member can serve, nor
on the tenure.

Jonathan Callaghan serves as the Lead Independent Director of Fitbit, Inc. He is a founder
and a Managing Partner of True Ventures. (Fitbit, Inc.) He had also served as Managing
Partner at Globespan Capital and CMGI@Ventures. (Fitbit, Inc.) Prior to that, he had
worked for AOL Inc.s Greenhouse (venture capital/incubator for AOL) and as an associate
at Summit Partners. (Fitbit, Inc.) He holds a degree in Government from Dartmouth College
and an MBA from Harvard Business School. (Fitbit, Inc.)

As the Lead Independent Director, his duties are to preside over executive sessions of
independent directors, serve as a liaison between the independent directors and the Chairman,
and to be available for consultation and communication with the shareholders, as well as
other actions requested by the board. (Fitbit, Inc.)

Laura Alber has been a member since June 2016. (Fitbit, Inc.) She has also served as the
president and the CEO of Williams Sonoma, Inc. since 2010. (Fitbit, Inc.) Ms. Alber holds
a BA in Psychology from University of Pennsylvania. (Fitbit, Inc.)

Just like Ms. Alber, Glenda Flanagan has served as a member since June 2016. She is
currently the CFO or Whole Foods Market a position she has been holding since 1988.
(Fitbit, Inc.)

From June 2013 onwards, Steven Murray has been a member of the Board. He has been a
Partner at SoftBank Capital from 1996. Previously, he had worked for Deloitte & Touche

5
LLP. Mr. Murray is a member of several private companies boards of directors. (Fitbit, Inc.)
He graduate from Boston College with a BS in Accounting.

Christopher Paisley has been on board since January 2015. From January 2001, he has been
Deans Executive Professor of Accounting at the Leavey School of Business at Santa Clara
University. Previously, he had worked at different companies, holding positions such as CFO,
Senior VP of Finance. He serves as a member of the board of directors for Ambarella, Inc.,
Bridge Capital Holdings, Control4 Corporation, Equinix, Inc., Fortinet, Inc., and YuMe, Inc.
(Fitbit, Inc.) He graduated with a BA in Business Economics from University of California,
Santa Barbara and an MBA from Anderson School at the University of California. (Fitbit,
Inc.)

Fitbit, Inc.s board is separated into three committees:

Nominating and Governance Committee

Compensation Committee, and
Audit Committee.

The purpose of the Nominating and Governance Committee is to nominate candidates for
membership on the Board, develop corporate governance guidelines and policies, oversee the
evaluation of the Board and the management, including the annual evaluation of the
Committee, and advise the Board on other corporate governance matters. (Fitbit, Inc.)

The Compensation Committee assists the Board with compensation matters, such as
evaluating, recommending, approving and reviewing executive officer and director
compensation arrangement, plans, policies and programs, as well as administering cash-based
and equity-based compensation plans. (Fitbit, Inc.)

The Audit Committee helps the Board oversee financial accounting, financial reporting and
internal controls of Fitbit, Inc. (Fitbit, Inc.)

The table below shows the independent directors and their duties within each of the three
committees.

6
Table 1: Committee Composition (Source: FitBit.com)

7
Stockholders

Table 2: Major Stockholders

Fitbit, Inc. is a majority institutionally owned company, with 62% being owned by
institutions and funds. (Yahoo Finance)

Table 3: Top Institutional Holders

Their largest stockholder, Vanguard Group, Inc. is an American investment management

company, the largest provider of mutual funds and the second-largest provider of exchange-
traded funds. They hold stocks in numerous companies, across different industries, some
being Bank of America, Microsoft Corp., Facebook Inc., JPMorgan Chase & Co., etc.

8
Risk & Return, Cost of Capital, Capital Structure and Valuation
FitBit had its Initial Public Offering (IPO) on June 18th 2015 with the starting price of $38.23.
The price went up by almost 50% on the opening day, but soon after it started plummeting
within only 6 months of their IPO, FitBit was issuing new stocks for their secondary public
offering. That resulted in the stock price going down as the investors were worried about
FitBit seeking additional working capital so soon. However, with the reveal of their new
product in Janury 2016, the price fell nearly 20% as the product was met with scepticism, as
well as FitBit being involved in a class action suit about inaccuracy of their devices.

The graph below shows FitBits stock performance from their IPO until April 2017, against
S&P 500.

Graph 1: Stock Performance

Furthermore, FitBits stock rate of return has been quite unstable, as can be seen from Graph
2 below. Yet, an interesting fact is that analysts recommend holding the stock as opposed to
selling it, indicating that not all hope is lost.
9
 Graph 1: Stock Performance

Their main sources of risk are competition, the ability to satisfy consumer preferences in a
timely manner, higher prices of their new products, inability to successfully develop and
introduce new products and services, inability to forecast consumer demand and adequately
manage their own inventory and production, and finally, saturation of consumer markets.

Their main competition lies in specialized consumer electronics companies - Garmin,

Jawbone and Misfit; as well as traditional health and fitness companies - Adidas and Under
Armour, traditional watch companies Fossil and Movado, large broad-based consumer
electronics companies Apple, Google, LG, Microsoft and Samsung; and low-cost
manufacturers XiaoMi and Huawei.

Out of their most important competition, specialized consumer electronics companies, only
Garmin is publicly traded company, however, products similar to FitBits are not their only
source of business hence I was unable to use any of them as comparison to analyse FitBits
data.

10
In its 20 months of trading on the stock market, FitBit has paid out no dividends. Based on
the data of the previous 20 months, FitBit statistics are as follows:

= 2.56 = - 0.06

Standard Deviation = 12.79 R2 = 0.35

However, FitBit also had negative operating expenses (EBITDA) in 2016 together with no
debt for two consecutive years, thus making the calculations for optimal capital structure hard
to compute. Thus, I decided to use the data for 2015 as it had more cohesive data, as well as
positive EBITDA. Hence, it had the following statistics:

= 1.44 = - 0.09

Standard Deviation = 6.53 R2 = 0.04

As a result, it had the Cost of Equity of 2.32%, therefore making its Weighted Average Cost
of Capital also 2.34% as the company has no debt. Their implied growth rate was 2.31%, as
their value per share was $29.59. Thus, the value of the company is approximately 6 billion.

According to Damodarans model, FitBit is at its optimal capital structure by having 0 debt.
If they increased debt by even 10%, their rating would immediately decrease, as would their
EBITDA, which would actually become negative.

Interestingly, when it comes to FitBits valuation, 2015 data predicted an over 100% growth
rate of revenue, with increasingly positive free cash flows and more than a bright future. Yet,
the growth rate of 2016 was only 16%, with the free cash flows actually becoming
increasingly negative over forecasted years.

Given the most recent valuation results, it is intriguing as to why analysts are recommending
holding the stock, with a small prevalence to buying. Over the last several months, FitBits
stock price has only been going down, with a few instances of small but insignificant
increases in price. Furthermore, FitBit is defending itself in several lawsuits regarding their
devices, their accuracy and patents, with an unknown likelihood of them winning the cases.

To conclude, FitBit is a very young company, that is very susceptible to market changes,
consumer feedback and opinion, and other competition, as they are still not very much
11
established on the market. Their competition is growing stronger and fiercer, and it is
uncertain what their future will look like and if they will be able to keep the market share
they already have. However, they are also an interesting company to analyse and look into as
they are still in the start-up stage, and majority of those they are running against have been on
the market for quite a while. Yet, only time will tell what will happen with FitBit.

12
References

Blankenhorn, Dana. "Don't Buy What Fitbit Inc (FIT) Stock Is Selling." InvestorPlace.

InvestorPlace, 29 Mar. 2017. Web. 12 Apr. 2017.

"Cumulative Fitbit Inc's Interest Coverage Ratios." Fitbit Inc Interest Coverage (FIT),
Financial Stregth Current and Historic Trends and Ranking, Fundamental Ratios -
CSIMarket. N.p., n.d. Web. 12 Apr. 2017.

"FIT : Summary for Fitbit, Inc. Class A Common Sto - Yahoo Finance." Yahoo! Yahoo!, n.d.

Web. 12 Apr. 2017.

"FIT: Dividend Date & History for Fitbit, Inc." Dividend.com. N.p., n.d. Web. 12 Apr. 2017.

FIT Fitbit Inc A XNYS:FIT Stock Quote Price News. N.p., n.d. Web. 12 Apr. 2017.

"Fitbit, Inc. - IR Overview - Investor FAQ." Fitbit, Inc. - IR Overview - Investor FAQ. Fitbit,

Inc., n.d. Web. 17 Feb. 2017.

"Fitbit, Inc. (FIT) Ownership Summary." NASDAQ.com. NASDAQ.com, n.d. Web. 17 Feb.

2017.

"Fitbit Shares Outstanding:." YCharts. N.p., n.d. Web. 12 Apr. 2017.

Infinancials. "Fitbit Inc." Infinancials. N.p., n.d. Web. 12 Apr. 2017.

"Stock Report." Stock Report. NASDAQ.com, n.d. Web. 17 Feb. 2017.

"United States Rates & Bonds." Bloomberg.com. Bloomberg, n.d. Web. 12 Apr. 2017.

"Vanguard's Approach to Corporate Governance." Vanguard's Approach to Corporate

Governance | Vanguard. Vanguard Group, Inc., n.d. Web. 17 Feb. 2017.

13