SSNHZ Samsung Electronics Company Ltd (PK)

By Rob Copeland and Patrick Thomas 

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 capture consumers through devices other than smartphones.

For Google, the deal marks a further push into health as it faces regulatory threats to its massive internet-search and advertising business. It also puts Google in renewed and direct competition with Silicon Valley neighbor Apple Inc., which in the past week said rising sales of wearables and related services were becoming a bigger driver of its business.

Google's parent Alphabet Inc. will spend just a sliver of its $121 billion cash hoard to branch out with Fitbit's products. Alphabet's $2.1 billion bid was for $7.35 a share in cash, a 19% premium to Fitbit's closing price Thursday and more than 70% above where the stock was trading last week before deal talks were first reported by Reuters.

Fitbit shares rose more than 15% to $7.14 on Friday, 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, including through acquisitions. But the Mountain View, Calif., company continues to expand aggressively.

Founded in 2007, Fitbit makes so-called wearables, or watches and bracelets that primarily track health information like heart rate. Such products have fascinated Silicon Valley, where technology executives of all ages proudly wear rings and other devices to track sleep and "hack" their own personal performance.

Wearables have proved far less popular with the broader public. Google several years ago launched a brand of smart glasses that attracted as much ridicule as buyers, and Snap Inc. likewise got a lukewarm response to its hyped Spectacles line.

Fitbit traded for $45 soon after it went public in 2015, but the stock has cratered in the past few years as the company ceded market share to Apple and its smartwatch.

With its fitness offerings, Fitbit collects myriad and personal data on users that it in turn uses to suggest exercises and other lifestyle changes. And its sale is bound to raise issues around consumer privacy. In announcing the acquisition, Google said it wouldn't 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."

Apple in many ways is a model for what Google hopes to accomplish.

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.

Facebook is also in the wearables mix. This fall the social-media giant reached a deal to buy CTRL-Labs Inc., a startup that develops devices that can interface with the brain.

"We're talking about data that used to be impossible to collect on a mass scale," Craig Hallum analyst Alex Fuhrman said. "Only since the beginning of the Fitbit era have consumers been walking around with wearables that monitor their heart nearly 24 hours a day."

Google's hardware line for now consists mostly of slow-selling products like the Chromebook laptop and Pixel smartphone.

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 division as a "startup" within the conglomerate.

"I think eventually this will be a very large, important business," he said.

Some observers remain skeptical. "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."

Fitbit says it has sold more than 100 million devices world-wide since its founding, and currently has more than 28 million active users.

"Google is an ideal partner to advance our mission," said James Park, a Harvard University dropout who co-founded Fitbit. "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," he said in a statement.

The deal is expected to close next year, the companies said.

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 its fitness trackers jumped 51% and the health division showed some strength. Fitbit is scheduled to release its third-quarter earnings report Nov. 6.

--Sarah E. Needleman contributed to this article.

Write to Rob Copeland at rob.copeland@wsj.com and Patrick Thomas at Patrick.Thomas@wsj.com

(END) Dow Jones Newswires

November 01, 2019 19:17 ET (23:17 GMT)

Samsung Electronics (PK) (USOTC:SSNHZ)
Historical Stock Chart
From Mar 2024 to Apr 2024

Samsung Electronics (PK) (USOTC:SSNHZ)
Historical Stock Chart
From Apr 2023 to Apr 2024