Morgan Stanley's Katy Huberty said that there is the likelihood for "multiple winners" in the wearables space, including leaders Fitbit and Apple, as well as Garmin Ltd. GRMN and SAMSUNG ELECT LTD SSNLF. The analysis comes following Morgan Stanley's May Alphawise survey, which showed that consumers indicating they would purchase a device is higher than those that own a device. Further, the wearables market is approaching the notebook market in terms of size, with 23 percent of consumers owning a wearable versus 28 percent that own a notebook.
The firm upgraded Fitbit to Overweight using a three-point rationale. First, Fitbit enjoys "strong brand and market share," which makes it a natural beneficiary of a growing market. Second, Morgan Stanley said that Fitbit is not losing too much business to the Apple Watch, with just 20 percent of Fitbit customers expressing intention to buy an Apple Watch. Finally, Morgan Stanley said that there was "stable demand and healthy inventory levels this quarter." Fitbit is indicated 9 percent higher in Tuesday's premarket trading.
Though Apple is not pulling too much share from Fitbit, it is instead taking business from Jawbone, Nike Inc NKE, Motorola Solutions Inc MSI, and Microsoft Corporation MSFT. During the second quarter, Huberty estimated that Apple shipped 3 million Watch units, 50 percent higher than many Wall Street estimates.
But it's not just Fitbit and Apple that can benefit from increased interest in wearable technologies. Though Huberty rated Garmin as Equal-Weight, she noted that the firm would "become more optimistic" on the stock if increased ad spending led to better brand awareness. Garmin has performed poorly year-to-date, falling nearly 31 percent as of Friday's closing price.
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