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Why Garmin’s Shares Are Hitting Record Highs As Rival Fitbit Sinks From View

November 17, 2019, 5:01 PM UTC

At almost the same time two weeks ago, wearables pioneer Fitbit was hoovered up by Google for a small fraction of its market value a few years ago, while rival Garmin reported record third-quarter sales that sent its stock price to a 12-year high.

Both companies once dominated their original niches—Fitbit and fitness trackers; Garmin and GPS trackers. And both had taken a direct hit from Apple.

The Apple Watch, introduced in 2015, stole much of Fitbit’s early momentum. Meanwhile, the iPhone’s mapping apps slowly killed Garmin’s in-car GPS market.

Fitbit tried to compete head-on with Apple, but could not match its larger rival’s features and app ecosystem for smartwatches. Garmin instead moved to diversify, offering more specialized gear aimed at specific groups of customers like avid boaters and hikers, and successfully pivoting to other markets Apple ignored.

Using both acquisitions and home-grown research, Garmin CEO Cliff Pemble has built a far more diverse portfolio of gadgets and professional gear, though often with common technological underpinnings. As a result, Garmin’s sales growth in everything from radios and smartwatches for hikers to automated piloting devices for pilots and fish finding radar for anglers has more than offset its continued decline in GPS trackers for cars.

The strength of that diversification effort was in display in the company’s most recent quarterly results. Record revenue of $934 million was up 15% from the same period a year earlier and 26% from the third quarter of 2017.

Garmin’s growth came from every segment except those still-shrinking sales of car GPS systems, which sent its auto division revenue down 17%. But sales in fitness, which includes the well-reviewed Vivoactive line of smartwatches, jumped 28%. The outdoor segment, with its trusty Fenix watches for hikers, saw sales increase 23%, aviation unit sales rose 28%, and marine unit sales grew 9%.

“Garmin is benefiting from scale and diversification after persistent reinvestments in new growth categories,” Morgan Stanley analyst Erik Woodring noted after the results came out. Strong spending on new gear by airplane owners is one driver, he wrote. “More product introductions in outdoor and fitness give us confidence that the company will continue to diversify its growth opportunities,” he added.

After its earnings report on Oct. 30, Garmin’s stock started rising and hit $97.60 on Nov. 11, its highest price since November 2007. Since then, its shares have cooled slightly to $95.65 as of mid-day trading on Friday, but they are still up 51% for the year.

By contrast, Google announced its deal to buy Fitbit on Nov. 1 for $7.35 per share, more than 60% less than when Fitbit went public in 2015. Still, that was better than Fitbit’s yearly low of $2.81 in August, a month after yet another weak earnings report had some investors questioning how much longer Fitbit would survive the Apple onslaught.

Garmin’s innovations

Yet, even with Apple as a key rival, Garmin has repeatedly been able to create new innovative products, at the same time or even before Apple. Meanwhile, Fitbit has always lagged.

When Apple first started selling its Apple Watch with a built-in heart rate monitor, Garmin had a smartwatch for runners that was ready with the feature later that year. Fitbit’s heart-rate monitoring smartwatch didn’t go on sale until 2017.

And lately, Garmin has introduced some features ahead of Apple, including an always-on color display in 2017, two years ahead of Apple. This year, Garmin also premiered a solar-charging smartwatch face that no other companies have.

To be sure, Garmin has failed to quickly match every Apple innovation. It introduced its first cellular-capable watches this year, two years after Apple. And Garmin finally went upscale this year with multi-thousand-dollar editions in its new MARQ smartwatch line, long after Apple started targeting high-end and more fashion-conscious buyers in 2015.

And that could be a problem for Garmin going forward. Apple has a vastly larger budget for research and development and is increasingly focusing on new fitness and health features for the Apple Watch. Also, Garmin doesn’t yet have sell earphones, a fast-growing segment that Apple is dominating with its AirPods and is rumored to be adding more fitness tracking features soon.

Garmin’s customer strategy

Another reason why Garmin thrived while Fitbit faded was customer targeting. Fitbit’s strategy was to aim at the broad consumer market with products meant for any average user. Garmin, by contrast, has created a vast array of different offerings with specialized appeal.

For example, in smartwatches, Fitbit has just two models (and Apple has only one, though it comes in two sizes). Garmin has created numerous different smartwatch lines, each with a much narrower focus. The Approach line is for golfers, with built-in maps of 41,000 courses worldwide, for example. The Instinct line for hikers comes in a durable, if somewhat ugly, case that meets military toughness standards and has 14 days of battery life. All of the watches in the high-end MARQ luxury line, which cost $1,500 to $2,500, are similarly specialized—from the Aviator for pilots to the Captain model for sailors.

“Boaters, golfers, pilots, and outdoor enthusiasts recognize Garmin’s high quality and innovative product line and associate a significant amount of value and quality with its products, which drives sales and new product acceptance,” explains Ivan Feinseth, director of research at Tigress Financial Partners, in a recent report. “This is the key driver of why Garmin commands such a strong gross profit margin.”

And it’s that strategy to specialize and go after niches that helps explain why Garmin has so easily survived its rivalry with Apple—even as Fitbit went astray and was swallowed up by a giant tech whale.

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