Fitbit Stock Soars 30% on Reports of Google’s Bid

Fitbit (FIT) stock soared as much as 30% today after Reuters reported that Google (GOOG) (GOOGL) had made a bid for Fitbit. Sources familiar with the matter stated that Fitbit would help Google compete with Apple (AAPL) in the fitness-tracking and smartwatch market.

This news comes ahead of Google parent Alphabet’s third-quarter earnings, which are due to be released today after the market closes. Google stock rose 2.3% ahead of its earnings. The bid news comes over a month after Reuters reported that Fitbit is exploring the option of a sale and that Google could be a potential acquirer.

Report: Google bids for Fitbit

Reuters reported that its sources stated that Google made a bid for Fitbit, the world’s third-largest smartwatch vendor. The report didn’t specify the amount of the bid. Although neither Google nor Fitbit commented on the report, we might get some clarity in Alphabet’s earnings call today.

In our experience, Reuters reports on these rumors have a high probability of taking place. If this rumor comes true and the deal does take place, it would benefit both Fitbit and Google. Let’s see how.

Google’s rising interest in the smartwatch

Google is a software and Internet services firm. However, it has been venturing into the hardware business to diversify into new nonadvertising revenue streams.

Google does not have its own fitness tracker or smartwatch. However, it participates in this market with its Wear OS (operating system) that it licenses to third-party brands like LG, Huawei, TicWatch, and Fossil. However, Google has failed to compete with smartwatch leaders Samsung (SSNLF) and Apple. Both Samsung and Apple use their own operating systems instead of Google’s Wear OS.

Google has its own hardware brand, Pixel. The tech giant launched the Pixel 4 smartphone and Pixelbook Go laptop under this brand. There have been several rumors that Google is eyeing a Pixel smartwatch. Google almost launched a Pixel smartwatch in 2016. However, it scrapped the project as it wasn’t satisfied with the product, according to a September 18 Business Insider article.

Why would Google be interested in Fitbit?

In January, Google acquired innovative smartwatch technology from Fossil for $40 million. Between January and now, Google hasn’t made any smartwatch announcements.

If Google acquires Fitbit, it would complement its plans to launch the rumored Pixel smartwatch. The combination of Fossil’s smartphone technology, Fitbit’s fitness tracker expertise, and Google’s OS could help it launch a competitive smartwatch.

In September, Apple launched Apple Watch Series 5. According to Strategy Analytics’ Q2 2019 report, Fitbit ranks third with a 9.8% share of the global smartwatch market after Apple and Samsung, which own 46.4% and 15.9% shares, respectively.

According to IDC, global wrist-worn wearables shipments rose 28.8% YoY in the second quarter, given the popularity of this form factor. IDC’s September 12 press release noted that most popular use cases for smartwatches looked at fitness data, connecting to smart home applications, and interacting with smart assistants. Google’s hardware strategy is to control the complete customer experience, which is not possible with third-party devices.

Why is Fitbit looking for a buyer?

Google has many reasons to buy Fitbit. But why does Fitbit want to sell its business? Fitbit has been losing market share as the wrist-worn wearable market became crowded with the entry of Apple, Xiaomi, Huawei, and Samsung.

While Fitbit has performed well in the fitness tracker segment, it failed to gain popularity in the smartwatch segment. It reduced its price and launched a new subscription offering called Fitbit Premium to boost sales.

Plus, Fitbit’s Versa smartwatch failed to gain the desired demand. The firm slashed its revenue and earnings guidance below analysts’ estimates in the second quarter.

After struggling with profits and market share for a long time, Fitbit reportedly looked at the possibility of selling the business in September. Unlike Apple’s smartwatch, Fitbit watches support both Apple’s iOS and Google’s Android OS.

At this point, an acquisition is a much-needed boost for Fitbit. Since its initial public offering in June 2015, Fitbit stock has declined 86%. An acquisition by Google could give it the resources to compete with competitors like Apple and Samsung.