Apple Inc. (AAPL) Needs to Buy Fitbit Inc (FIT) Immediately

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Among the many reasons that Apple Inc. (AAPL) bulls are frustrated after its fiscal-second-quarter report is that AAPL has more than $230 billion in cash sitting on its balance sheet, but is too scared to use it.

Apple Inc.: AAPL Needs To Be Smart & Buy FIT Immediately

In response to AAPL earnings, Netflix, Inc. (NFLX) and Tesla Motors Inc (TSLA) were mentioned by a handful of large AAPL stock owners as companies that Apple should target to spark growth.

While it is very possible that AAPL will go in this direction, if the company really wants to make a splash with an acquisition that can create long-term shareholder value, it needs to buy Fitbit Inc (FIT) now!

What AAPL Seeks in Acquisitions

When Apple CEO Tim Cook said on the company’s conference call that he is open to making a larger acquisition than he has in the past, investors automatically assumed TSLA or NFLX. However, investors must keep in mind that Apple has grown into this world power without big-splash acquisitions. Its largest to date is Beats for just $3 billion.

Therefore, it would seem way out of character for AAPL to spend $40 billion or more to buy TSLA or NFLX, companies that have a high level of risk due to rising competition and lavish valuations. It just does not sound like Apple.

When Apple bought Beats, its music business was up-and-coming and the headphones that came standard with its products were mostly celebrated by consumers. But what Apple did with Beats is add an extra dimension to its music business, and grabbed the one company that did hardware and services associated with music better than it did.

As an added bonus, Apple gained two of the brightest minds in music, Jimmy Iovine and Dr. Dre.

Fitbit is Like Beats

Regardless of where AAPL goes from here, the one thing we can all agree on is that Apple’s entrance into the wearables space has been all but a complete disaster.

While Apple does not disclose Apple Watch sales, we do know that revenue in its Other segment declined 50% sequentially and that AAPL has reduced the price of its watch on several occasions since the holidays.

Keep in mind, this was an industry that Apple was supposed to dominate, especially in the U.S., but has gained a market share of just 15%. Meanwhile, Fitbit, a company that operated solely in the basic wearables segment throughout 2015, controls nearly 27% of the entire wearables market. Moreover, Fitbit’s market share rose during the fourth quarter to 29.5%, as its products were largely considered the big winner of November and December 2015.

Since then, Fitbit has launched its first-ever smart wearable with the Blaze, and a new basic wearable with the Alta. In just one month post launch, the Blaze sold one million units, far more than any analyst expected, and thereby assuring that Fitbit’s entrance into the smart wearables space would be just as successful as its dominance in the basic category.

With that said, is it any surprise that the Apple Watch suffered during the company’s last quarter? After all, it was competing against Fitbit’s Blaze for the first time.

Ironically, the Apple Watch was supposed to be the death of Fitbit’s remarkable run over the last few years, but instead, Fitbit got the opportunity to showcase its resilience and unmatched grasp on the consumer’s wrist.

The big takeaway here is not that Fitbit is crushing Apple in all things related to wearables, and will likely continue. Instead, it is important to note that AAPL wants to be relevant, if not dominant, in the wearables space, and it obviously needs some help to do so.

Much like Beats in music, Fitbit would provide AAPL with the missing component and competitive advantage to be dominant in the wearables space. Also, AAPL would be able to acquire Fitbit CEO James Park, who has seemingly figured out the wearables space and what consumers want better than anyone else.

While AAPL would have to pay a king’s ransom to purchase NFLX or TSLA, it could acquire Fitbit very cheap, with the company having a market cap of around $4 billion.

However, FIT is starting to create separation from Apple and other competitors, and has proven over the last year that it is in fact a force to be reckoned with. Therefore, FIT won’t stay cheap long, not when it is dominating an industry that is expected to achieve long-term double-digit growth.

Hence, if AAPL wants to become a leader in wearables, and pay a cheap price to do so, it better act quickly on Fitbit.

As of this writing, Brian Nichols owned shares of both AAPL and FIT.

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Article printed from InvestorPlace Media, https://investorplace.com/2016/04/apple-stock-aapl-buy-fitbit-fit/.

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