By Patrick Thomas and Rob Copeland
Google reached a deal to buy wearable fitness products company
Fitbit Inc. for roughly $2.1 billion, a move that intensifies the
battle among technology giants to establish dominance in
mass-market platforms that could succeed the smartphone.
For Google, the deal marks a further push into consumer
electronics, an area where it has yet to gain significant traction
to complement its massive internet-search and advertising business.
It also puts Google in renewed and direct competition with Apple
Inc., which this week said rising sales of wearables and related
services were becoming a bigger driver of its earnings.
Google, a unit of Alphabet Inc., said Friday it will acquire the
maker of fitness trackers and smartwatches for $7.35 a share in
cash, a 19% premium to Fitbit's closing price Thursday and a more
than 70% premium from last week before deal talks were first
reported by Reuters.
Fitbit shares rose 16% in morning trading while Alphabet's
shares ticked up slightly.
The deal lands at a moment when Google and other tech giants are
under scrutiny on a number of fronts over their competitive
practices and dominance of certain businesses.
Fitbit makes so-called wearables, or watches and bracelets that
track health information like heart rate. It also has a paid
subscription service that suggests exercises and other lifestyle
changes based on the individual data it collects.
Given that Fitbit collects such myriad and personal data on its
users, the deal will also raise issues around consumer privacy. In
announcing the acquisition, Google said it would not use Fitbit
data to help power its massive online advertising business.
"Similar to our other products, with wearables, we will be
transparent about the data we collect and why," Rick Osterloh, the
head of Google's hardware division, said in a statement. "We will
never sell personal information to anyone. Fitbit health and
wellness data will not be used for Google ads. And we will give
Fitbit users the choice to review, move, or delete their data."
The regulatory scrutiny hasn't brought Silicon Valley deal
making to a halt. 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.
For all their promise, wearables as a category have had as many
misses as hits. Google several years ago launched a brand of smart
glasses that attracted as much ridicule as buyers, and Snap Inc.
got a similarly disappointing consumer response to its Spectacles
line.
Apple in many ways is a model for what Google hopes to execute.
While the Apple Watch was initially a disappointment, sales have
picked up lately, and the company's AirPods were an immediate hit.
The iPhone maker said on Wednesday that sales in its wearable
business soared 54% in the latest quarter.
Google's purchase of Fitbit shows its interest in bulking up its
hardware business, consisting mostly of niche products like the
Chromebook laptop and Pixel smartphone. That remains a work in
progress. Google has spent billions on targets like HTC Corp., a
smartphone maker, and Nest, a speakers company, with little to show
for it in sales, analysts say. Google doesn't break out financial
performance for its hardware division.
It hired Mr. Osterloh, a former Motorola president, in 2016 to
steer the nascent unit. In an interview with The Wall Street
Journal last month, Mr. Osterloh often referred to the hardware
unit as a "startup" within the conglomerate.
"I think eventually this will be a very large, important
business," he said.
Some analysts said the company's troubled history with hardware
warrants skepticism about Google's ability to integrate Fitbit in
its ecosystem of products.
"The acquisition is another example of Google tilting at
windmills" in hardware, analysts at Wedbush Securities wrote in a
report Friday. "Google is uniformly bad at consumer products in our
view, and appears to us to be intent on spending whatever it takes
to prove our view wrong."
James Park and Eric Friedman founded Fitbit in 2007, envisioning
that sensors and wireless technology could be integrated for 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.
"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," Mr. Park, who serves
as Fitbit's CEO, said in a statement. The deal is expected to close
in 2020, Fitbit said.
The San Francisco company relies largely on the sale of its
devices, 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's results have been pressured in recent months. In July,
it 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 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 Nov. 6.
Analysts have said the deal for Fitbit could allow Google to
expand its reach into medical technology, an area where technology
and health-care companies are competing to develop new ways for
consumers to corral their digital health data.
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.
Fitbit's health division, which partners with programs like
Medicare and some health insurers, to develop wellness
applications, saw sales climb 16% in the second quarter and are on
track to hit $100 million this year, the company said.
Write to Patrick Thomas at Patrick.Thomas@wsj.com and Rob
Copeland at rob.copeland@wsj.com
(END) Dow Jones Newswires
November 01, 2019 12:46 ET (16:46 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
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