3 Reasons Fitbit Would Be Better Off Acquired


When Fitbit (NYSE:FIT) went public in June 2015, there was great pleasure across the providing. The inventory surged from its IPO worth of below $3 billion to a market cap of greater than $10 billion within the ensuing months. 

FIT Market Cap Chart

FIT Market Cap information by YCharts.

But at this time, it is a markedly completely different story. Slumping gross sales, stiff competitors, and deteriorating financials have cratered FitBit’s market capitalization to proper round $1 billion. To buyers, it was no shock to listen to that the corporate is pursuing options to be acquired.

There are three the explanation why this fitness-tracker producer could be higher off acquired — and two people who find themselves the last word decision-makers for the way it might occur. 

Stethescope laying on top of US 100 dollar bills.

Image Source: Getty Images.

Opportunity to chop prices

Negative to tepid income development for the previous 11 quarters has put important strain on the corporate’s price construction. When revenues drop, it is troublesome to chop sufficient prices to maintain margins secure, particularly when income development has been absent for therefore lengthy. Growth only recently returned to the earnings assertion, with Q1 2019 being the primary quarter in 10 to publish a quantity higher than zero. 

Metric

Q1 2018

Q2 2018

Q3 2018

This autumn 2018

Q1 2019

Q2 2109

Year-Over-Year Revenue Growth

(17%)

(15%)

0%

0%

10%

5%

YoY=Year over 12 months Data from SEC filings, chart by writer.

Combine a difficult top-line efficiency with declining gross margins as the corporate has moved into smartwatches, and internet earnings has been within the pink for 10 of the previous 12 quarters.

Cutting prices could possibly be simpler after an acquisition, as many assist features — human sources, finance, data know-how, advertising, and even provide chains all have their very own costly administration construction — could possibly be folded into the father or mother firm. Duplicate administration positions could possibly be eradicated with no impact on day-to-day operations.

But slicing prices alone will not make sure the success of the Fitbit model. More funding in innovation is required.

Improved skill to put money into innovation

Cost pressures and hundreds of thousands of {dollars} in losses have introduced FitBit to its lowest money place in 16 quarters. The government staff is caught between utilizing its money to put money into transformational improvements and supporting the present enterprise. This places great significance on how each greenback amongst Fitbit’s $565 million of money and money equivalents is spent.

While it is a stand-alone firm, administration could also be hesitant to put money into bigger or riskier improvements for worry of operating out of money. But a subsidiary, FitBit might use that money extra aggressively with out worrying about making payroll. That mentioned, the acquirer must be aligned with Fitbit’s imaginative and prescient “to make everyone in the world healthier” for a profitable merger. 

Potential synergies with gadgets and past

Often the important thing motive for mergers or acquisitions is synergy between two events. For Fitbit, there are a few kinds of father or mother firms that might create one of these relationship. First could be one which helps speed up its quest to get its software program authorised by the U.S. Food and Drug Administration (FDA) for diagnosing medical circumstances resembling sleep apnea or AFib.

A partnership was announced final week that might foreshadow issues to return. It’s an effort with the Bristol-Myers Squibb-Pfizer Alliance   supposed to supply a “timely diagnosis of atrial fibrillation (AFib) … [and] development of educational content and guidance to support people at increased risk for AFib.” While the FDA hasn’t but authorised this answer, a partnership like that is an instance of how a deep relationship with a healthcare firm might convey merchandise to sufferers. In addition to the aforementioned firms, medical device giants with experience, in addition to authorised diabetes- and cardiovascular-focused merchandise, might assist convey medical breakthroughs utilizing Fitbit gadgets to actuality. 

Reducing healthcare prices could possibly be one other synergistic alternative. It’s been proven that our behaviors have a bigger impact on our general health than our genes. UnitedHealth Group is aware of this and has created a program utilizing fitness trackers to pay its members to take care of an energetic life-style. Health insurance coverage suppliers might purchase Fitbit to create software-focused choices for shoppers that assist cut back healthcare prices and add to the underside line. Some firms which might be taking a tech-first strategy to healthcare, resembling the Amazon joint venture or CVS Health, may benefit from such a merger.

Regardless of the acquirer, there are solely two those who would want to approve any deal. 

Co-founders are nonetheless targeted on the mission

CEO James Park and Chief Technology Officer Eric Friedman co-founded the corporate in 2007 and at this time personal a majority of the voting rights. These two leaders are “all in” with the mission “to empower and inspire you to live a healthier, more active life.” They’re probably searching for an acquirer that shares their ardour, one that might enable them extra mission-focused time with out the scrutiny and pressures of being a public firm. Fitbit has constructed a robust model that resonates with customers, and discovering an acceptable associate would improve the chances that it’ll keep that method.



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