Alphabet’s Google (GOOGL) definitively agreed to acquire Fitbit (FIT) , the prominent healthcare-wearables company, for $7.35 a share, or $2.1 billion, a deal that pits the internet-search and technology giant directly against archrival Apple (AAPL) .
Fitbit shares leaped 15% to $7.11 in trading Friday.
The companies expect to close the deal in 2020, subject to conditions including including regulatory clearances and approval by Fitbit’s holders.
Google goes head-to-head with Apple and Samsung (SSNLF) on smartphones, but hasn’t developed wearables as yet.
The Mountain View, Calif., company “will have to accelerate investment in the [Fitbit] product line,” but “the acquisition can help Google build out a wearables platform that can moderate Apple’s growing competitive advantage in the space,” said KeyBanc analyst Andy Hargreaves in a report on Friday.
He rates Alphabet overweight with a $1,546 target price. Alphabet shares traded up 1.1% at $1,272.
“There are a number of ways in which Google could use its existing software, services and digital health investments to bolster Fitbit’s existing wearables and health services businesses.” according to Real Money’s Eric Jhonsa.
One possibility includes “creating wearables that tightly integrate Google Assistant’s services, with a focus on health and fitness voice commands and notifications.”
Apple in September introduced Series 5 of its Apple Watch, which beyond its fitness applications also measures heart rhythm, menstrual cycle and ambient-noise levels and connects with a user’s iPhone and Apple Music subscription.
San Francisco-based Fitbit, founded in 2007, said it has 28 million active users. Fitbit’s more than 100 million devices sold measure things like the number of steps a person takes, the distance traveled, floors climbed, calories burned and other metrics.
In a statement, Fitbit said its products would remain platform-agnostic across Google’s Android and Apple’s iOS operating systems.
Cowen’s John Blackledge, who rates Alphabet outperform with a $1,525 target, addressed the antitrust question.
“While tech platforms are currently under increased antitrust scrutiny, … Fitbit’s relatively small size and hardware-based nature make the deal less likely to face regulatory opposition,” he wrote in a note.
“That said, we acknowledge that Google’s recent Looker acquisition continues to face deeper scrutiny from the Justice Department.” Google in June agreed to pay $2.6 billion for the Santa Cruz, Calif., data-analytics-software provider.
For 2019’s first half, Fitbit narrowed its GAAP loss to 58 cents a share from 83 cents in the year-earlier first half. The latest adjusted loss was 29 cents. Revenue climbed 7% to $585.4 million.
For the full year, the company said it expected to sell more devices than it did a year earlier but average selling prices would decline. It expected an adjusted loss of 31 cents to 38 cents a share for the year on revenue of $1.43 billion to $1.48 billion.
Reuters first reported Oct. 28 that Alphabet had bid for Fitbit.
Fitbit stock closed Friday, Oct. 25, at $4.31 and leaped nearly a third to $5.64 on Monday. It closed Thursday at $6.18.
The company went public in June 2015 at $20 a share, nearly triple the deal price.
“Fitbit was initially granted a high post-IPO valuation, and its revenue trajectory has been very different than what was expected at IPO time,” TheStreet’s Jhonsa said.
Annual revenue peaked in 2016 — the first full year after the IPO — at $2.17 billion, and the consensus for 2019 is $1.45 billion, he noted.
“I think this reflects a mixture of competition from the Apple Watch, the failure of Fitbit’s Versa smartwatch line to live up to expectations and the fact that many Fitbit tracker owners eventually grew tired of the devices, even if the company still has a base of loyal users,” he said.