GOOG Alphabet Inc

By Patrick Thomas 

Alphabet Inc.'s Google has reached a deal to buy wearable fitness products company Fitbit Inc. for roughly $2.1 billion, an acquisition which would extend the internet-search giant's reach in consumer electronics.

Google said it would acquire the maker of fitness trackers and smartwatches for $7.35 a share in cash, a 19% premium to Fitbit's closing price Thursday. Fitbit shares rose 16% in Friday morning trading, while Alphabet's shares ticked up slightly.

Google's purchase of Fitbit shows its interest in spending billions of dollars to bulk up its hardware business. It previously hired Rick Osterloh, a former Motorola president, in 2016 to steer the nascent unit, which includes Chromebook laptops and the Pixel smartphone. In an interview in October, Mr. Osterloh referred to the hardware unit as a "startup," given the company's short history in manufacturing its own devices.

The deal also shows that tech companies are moving ahead with acquisitions despite growing antitrust scrutiny from regulators and state attorneys general. Google agreed in June to pay $2.6 billion for Looker, a maker of business intelligence and data analytics software, to bolster its cloud business. Facebook Inc. this fall reached a deal to buy brain-computer interface technology startup CTRL-Labs Inc.

"Google is an ideal partner to advance our mission. With Google's resources and global platform, Fitbit will be able to accelerate innovation in the wearables category, scale faster, and make health even more accessible to everyone," said James Park, co-founder and CEO of Fitbit. The deal is expected to close in 2020, Fitbit said.

Mr. Park and Eric Friedman founded Fitbit in 2007 and envisioned that sensors and wireless technology could be integrated in developing a wearable product to track fitness and health. Fitbit has since sold more than 100 million devices world-wide, and has more than 28 million active users, the company said.

Much of the San Francisco company's sales are on the devices it produces, but it has been working to expand its subscription business to develop a source of recurring revenue. The company rolled out a new subscription service, Fitbit Premium, earlier this year aimed at providing health and fitness guidance for smartwatch owners.

In the first six months of this year Fitbit reported $585.4 million in revenue, up from $547.2 million in the year-earlier period.

Fitbit in July lowered its full-year revenue outlook after weaker-than-expected sales of its new smartwatch model, Versa Lite. The smartwatches are aimed at competing with popular offerings from Apple Inc. and Samsung Electronics Co. Still, the company reported narrower losses in the second quarter as sales of fitness trackers jumped 51% and the health division showed some strength. Fitbit is scheduled to release its third-quarter earnings report on Wednesday.

Analysts have said the deal for Fitbit could allow Google to expand its reach into medical technology, an area where tech and health-care companies are competing to develop new ways for consumers to corral their digital health data.

"If Google wants to expand in MedTech and go head-to-head with Apple, it would make eminent sense to purchase Fitbit rather than create its own devices and collect years of data already captured by Fitbit," analysts at Wedbush Securities said earlier this week, after an offer from Google was reported.

Fitbit's health division, which partners with programs like Medicare and some health insurers, to develop wellness applications, saw sales climb 16% in its second quarter and they are on track to hit $100 million this year, the company said.

Apple is rolling out online tools that consumers can use to bring together health information siloed in the systems of hospitals, doctors and insurers. Apple said this week that it is continuing to build out its health-records capabilities.

Write to Patrick Thomas at Patrick.Thomas@wsj.com

(END) Dow Jones Newswires

November 01, 2019 10:53 ET (14:53 GMT)

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