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Health Wearables Are the Future

Davison Westmoreland

CEO, Gymlion

I don’t own a health wearable. Many of them are just glorified pedometers with sleep trackers, which don’t even work effectively in many cases. Knowing how many steps I took in a given day isn’t going to encourage me to exercise more or less.

Perhaps sharing my disregard for health wearables, a recent article in Quartz, entitled “Wearables are sexy, but the smart money in health startups is elsewhere,” argued against wearables startups from an investment standpoint. The three arguments presented were:

1) Most digital health companies have underperformed on the S&P 500 over the last 5 years,

2) Apple’s entrance into the market will kill even already established competitors, and

3) Only 2 of 5 companies listed as the most likely to offer an IPO in 2015 were wearables according to a poll.

However, all of these arguments are backward looking, making a tragic mistake: They fail to see what the future holds for wearable technology.

1. The Potential for Greater Retention

Another criticism of wearables pointed to by other authors is that users abandon their devices at a relatively high rate. The whitepaper used to make these cases often is a January 2014 article by Endeavor Partners. However, a more recent whitepaper from the same firm shows steady upward progress by wearable companies on this metric.

retention

These numbers will likely continue to increase as more feature-rich products are released.

2. Demonstrated Strong Growth

The Quartz article listed 4 digital health IPOs that have underperformed the S&P 500 over the last 5 years. However, none of those are wearable companies. If you look at the growth of actual wearables, you’ll see some impressive numbers. This data in the chart above was taken from a survey in May and June of 2014, so it doesn’t even include the recent Apple iWatch release. Projecting forward, a market research firm estimated that the wearables market will grow at a CAGR of 24.56 percent.

Strong growth

3. Sensors Beyond the Apple iWatch

The iWatch will no doubt provide serious competition to many existing and future wearable companies. However, it is unlikely that Apple will dominate the wearable market for one main reason: It’s just for wrists. Startups are creating wearables that can place sensors all over your body—not just on your wrist. For example, Sensoria socks provide real-time feedback on users’ running speed and form. Athos garments measures muscle performance and breathing in real-time, also enabling feedback on exercise form. The following graphic from PricewaterhouseCoopers details other wearables that are located all over the body.

body wearables

While Apple will carve out a significant segment of the wrist wearables market, there will be many niche markets for the taking, especially in health and fitness. The challenge to the investor is in figuring out which companies will rise to the top.

4. The Case of Fitbit’s Profitability

The final argument in the Quartz article was that “only” 2 of 5 companies in the digital health sector expected to offer an IPO in 2015 were wearable companies. However, the article omitted a major player in this space, which also recently filed for an IPO: Fitbit.

Let’s take a look at Fitbit’s numbers. Many tech companies go public before they are profitable; this certainly isn’t the case with Fitbit. Fitbit ended 2014 with $745.4 million in revenue, with net income of $131.9 million and adjusted EBITDA of $191 million. Notably, Fitbit has already generated $336 million in the first three months of 2015. As you can see from the charts, Fitbit’s number of devices sold, total revenue and paid active users have all increased dramatically since 2012.

Devices

Wearables are just starting to enter public markets, but the early indications from Fitbit are very positive.

Where Do We Go From Here?

There is little doubt that the future is incredibly bright for health wearables. The beauty of wearables is that users get real-time, actionable feedback, instead of getting results from their doctors once a year. Many wearables currently track movement, heart rate and sleep. However, other companies are already working on temperature, respiration, skin conductance, brain activity, hydration, posture, oxygen levels, heart rate variability, muscle activity, blood pressure, eye tracking and ingestion—to name a few.

Wearables become even more powerful as they interface with other devices. For example, Jawbone users can program their device to turn on their coffee machine when the device recognizes that you’re up. Sync up with a few more technologies, and it wouldn’t be a stretch to expect wearables to know when you’re low on nutrients or even detect early signs of cancer in the not-so-distant future.

And all of this means that although I don’t own a health wearable now, it won’t be long before I do.

Davison Westmoreland

CEO, Gymlion

Davison Westmoreland is the CEO of GymLion. He graduated from Duke in ’04, Johns Hopkins in ’08 and UVA in ’10. You can read other health related articles from him…