Fitbit Inc (FIT) Plans to Kill Pebble Off Completely

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Fitbit buys Pebble - Fitbit Inc (FIT) Plans to Kill Pebble Off Completely

Source: Pebble

According to a report from Bloomberg, Fitbit Inc (NYSE:FIT) is close to finalizing a deal for smartwatch maker Pebble. That purchase is focused on software assets and engineers, seen as key to boosting its fight against Apple Inc. (NASDAQ:AAPL) and its Apple Watch. The conclusion of the deal where Fitbit buys Pebble will also mark the end of the Pebble smartwatch.

Fitbit Inc (FIT) Plans to Kill Pebble Off Completely

Source: Pebble

Bloomberg published an account listing details of the acquisition, based on information provided by sources who are “familiar with the matter.”

The purchase is focused on IP, including Pebble’s operating system, watch apps and cloud services. That includes software engineers and testing staff, with 40% of Pebble employees (primarily in these areas of expertise) reportedly being offered jobs at Fitbit.

Pebble smartwatches will be axed, all products currently being funded through Kickstarter campaigns will be cancelled, any remaining inventory will be sold off separately and Pebble staff focused on hardware will be out of a job. The Pebble offices will be closed down and CEO Eric Migicovsky will leave –apparently to join startup incubator Y Combinator.

Bloomberg’s sources claim a purchase price of under $40 million, with FIT taking on none of Pebble’s debt. Some of the $40 million will go toward staff severance, and those who pre-paid for new Pebble hardware through Kickstarter will apparently get refunds.

What Can Fitbit Do With Pebble Assets?

When the deal officially closes, and Fitbit buys Pebble, that immediately takes care of one short-term issue for Fitbit.

With its latest generation of smartwatches, Pebble had been pivoting toward fitness tracking, including adding heart rate sensors. At $129, the Pebble 2 — a smartwatch with cross-platform compatibility and fitness tracking capability — could have become a serious competitor to Fitbit’s $149.95 Charge 2.

Buying Pebble eliminates that short-term threat.

Longer-term, the acquisition provides Fitbit with assets and expertise it has lacked for the ongoing battle against AAPL.

Fitbit stock has taken a beating this year, and a big part of that has been the half-hearted response to the Apple Watch with the Blaze. Expected to be a smartwatch, instead the Blaze was positioned as a much lighter duty “fitness watch.”

With the Pebble IP and engineers, FIT is in a better position to develop a true fitness smartwatch — with advanced capabilities and an ability to run third-party apps.

This would put Fitbit stock in a much stronger position for long-term growth. FIT is still the leader in fitness wearables and can continue to take advantage of the demand for these products. At the same time, it can be putting Pebble engineers to work on developing a true fitness smartwatch to take on the Apple Watch and other competitors, protecting Fitbit stock from eroding sales from that direction.

With a true smartwatch in its product line-up, FIT could potentially go on the offensive against Apple and company instead of playing defense. Consumer interest in smartwatches has ebbed significantly in the past year, but if it picks up again, Fitbit stock could be there to take advantage of the demand.

The deal where Fitbit buys Pebble hasn’t closed yet, but Bloomberg’s sources say it is “imminent.” When it happens, it will mark several milestones: the end of a smartwatch pioneer and the beginning of a new phase for the long-time leader in fitness wearables.

As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.

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Brad Moon has been writing for InvestorPlace.com since 2012. He also writes about stocks for Kiplinger and has been a senior contributor focusing on consumer technology for Forbes since 2015.


Article printed from InvestorPlace Media, https://investorplace.com/2016/12/fitbit-inc-fit-kill-pebble-completely/.

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