Fitbit Buyout Speculation Is Pretty Ridiculous

Shares of Fitbit (NYSE: FIT) spiked higher in the early hours of trading on Tuesday, and the few outlets discussing the move are pinning the uptick on takeover speculation. Chatter earlier this month that Apple (NASDAQ: AAPL) was in talks with Aetna (NYSE: AET) to provide the insurer with free or low-cost Apple Watch to its roughly 23 million health insurance members -- a win-win idea, if it pans out -- is reportedly spawning speculation that rival insurers may want to acquire Fitbit whole for some serious skin in the wearables market.

The rumor doesn't hold up. Why would an insurer take on what is now a company that has posted three straight quarterly deficits -- coming off of three consecutive quarters of double-digit year-over-year declines in revenue -- when it can just do what Aetna's doing and negotiate a bulk discount? Fitbit is already a partner with a growing number of corporations and organizations that subsidize its activity-monitoring gadgets. Why buy the former cash cow when you can get its milk for a modest fee? Taking on an out-of-favor upstart that would be dilutive to earnings isn't going to be high on the wish list of health insurers, and we're just starting to scratch the surface.

Image source: Fitbit.

Continue reading

Source: Fool.com