A long-awaited deal for Alphabet (NASDAQ:GOOG,NASDAQ:GOOGL) to purchase the fitness tracker Fitbit (NYSE:FIT) appears to finally be coming to fruition. And that means investors are running out of time to buy Fitbit stock now to capitalize on the deal.
It’s been nearly a year since Alphabet announced plans to purchase Fitbit for $2.1 billion. The deal calls for Alphabet to buy Fitbit stock shares for $7.35.
At the time, that represented a significant premium to FIT stock. Now, 11 months after the deal announcement, shares of Fitbit stock are now just under $7.
The good news? The stock is still trading at a discount from Alphabet’s purchase price. So there’s still time to make a profit — if you think that the acquisition is really going to go through.
Fortunately, it appears that it will.
All Eyes Are on the EU
There are plenty of regulatory hurdles for this deal to complete. And currently, lawyers are working with the European Union to get necessary approvals for the deal to proceed.
The hang-up is how Alphabet and its powerful search engine, Google, would use the data it gathers from its customers. Fitbit is known for is wearable tracking devices that measure everything from heart rate to steps taken and sleep quality. That said, it also tracks a user’s location.
The European Commission, which is handling the negotiations, previously rejected a proposal from Google that it does not use Fitbit’s data for advertising purposes, saying the offer was insufficient to address concerns from competitors in the wearables space.
Now, Google has offered new concessions in an effort to push the deal forward. In fact, it said it offered to restrict the use of Fitbit data for Google ads. It also promised that it would allow Fitbit users to continue to connect to third-party services. And users could authorize third-party services to have access to their data.
Overall, the commission is seeking feedback before making a decision on the new offer. And it is expected to announce a ruling by Dec. 23.
Additionally, Westchester Capital Management managing member Roy Behren told Barron’s that he is now optimistic that the deal will pass EU scrutiny and finally be closed:
“Our view is that the concessions made by the company are sufficient, or close to sufficient, to allow the European Commission to approve it,” he said.
After the EU regulatory hurdles are cleared, Alphabet and Fitbit will have to get similar approvals in the U.S. However, that process is likely to move quicker since much of the legwork is being done in Europe.
Fitbit at a Glance
On its own, Fitbit stock has struggled to remain a consistent winner. It has about a 3% market share in the fitness wearables market, while Apple (NASDAQ:AAPL) has more than a 30% market share.
Moreover, second-quarter revenue fell by 16.7% on a year-over-year basis to $261.3 million. Device sales fell 30% in the quarter, totaling 2.5 million devices.
The company also reported a net loss for the quarter of $104.1 million. This was bigger than the $68.5 million that it lost in the second quarter of 2019.
Additionally, Fitbit told regulators that the closing date for its deal with Alphabet is May 1, 2021 at the latest.
The Bottom Line on Fitbit Stock
Collectively, this company is in a holding pattern while Alphabet negotiates with regulators to push this $2.1 billion deal over the finish line.
And make no mistake about it — the Fitbit acquisition is a big deal for Alphabet. It would allow Alphabet to compete directly with Apple in the wearables space. Which, would also give it a trove of health and fitness user data. Big tech companies are eager to get into the healthcare arena, which is a long-term growth opportunity. And wearable devices are a key component of that.
At current prices, Alphabet’s acquisition of Fitbit represents a 7% premium for FIT stock. Even if the deal closes next spring, that’s not a bad return for a short-term trade.
Once the EU gives its final approval in December, look for the Fitbit stock price to jump to close to the $7.35 mark that Google plans to pay. So be advised: if you agree that this deal is likely to go through, your window to make a trade is closing by the day.
FIT stock as an A rating and a “strong buy” recommendation in my Portfolio Grader right now.
On the date of publication, Louis Navellier had a long position in GOOG. Louis Navellier did not have (either directly or indirectly) any other positions in the securities mentioned in this article.
On the date of publication, the InvestorPlace Research Staff member primarily responsible for this article had a long position in AAPL. The InvestorPlace Research Staff member primarily responsible for this article did not hold (either directly or indirectly) any other positions in the securities mentioned in this article.
Louis Navellier had an unconventional start, as a grad student who accidentally built a market-beating stock system — with returns rivaling even Warren Buffett. In his latest feat, Louis discovered the “Master Key” to profiting from the biggest tech revolution of this (or any) generation.