Fitbit, the leader in the wearables category, is close to an agreement to buy struggling smartwatch maker Pebble for up to US$40 million, in a move to gain the firm’s intellectual property and software.
The negotiations follow several months of financial turmoil at Pebble, which reportedly slashed its workforce by 25 percent in March and has rebuffed several prior offers to be acquired, The Information reported last week.
It’s rumored that Pebble CEO Eric Migicovsky last year turned down Citizen’s $740 million acquisition offer, as well as a $70 million bid from Intel prior to the launch of Pebble 2.
“Fitbit does not comment on rumors or speculation,” company rep Michelle McCourt told the E-Commerce Times.
The expectation that Pebble would going to have to make a tough decision on the way forward has intensified.
“Pebble was overmatched in a market awash with smartwatches,” said Rob Enderle, principal analyst at the Enderle Group.
That’s in spite of the fact that “they have one of the best products in the segment — particularly with regard to battery life and price,” he told the E-Commerce Times.
Fitbit has a far wider reach, but it ha struggled to develop a product that isn’t tightly focused on exercise, Enderle observed.
Fitbit feels it can provide Pebble with the resources to address a broader market, while Pebble provides watches that support a broader market, he suggested.
Fitbit has seen its own share of turmoil in recent weeks after less-than-expected third-quarter revenue, along with a profit warning, led to several analysts downgrades last month.
The company this summer unveiled new software features for Fitbit Blaze and design options for Blaze and Fitbit Alta, which soon were followed by Fitbit Charge 2 wristbands featuring new PurePulse heart rate tracking.
Fitbit shares on Monday closed $8.03 — just pennies above its $7.98 low since last year’s IPO.
Although the company continued to be profitable, its growth would not match the pace previously expected, CEO James Park warned in the quarterly earnings announcement.
Fitbit expected fourth-quarter revenue of between $725 million and $750 million, representing growth of 2 percent to 5 percent, and earnings per share of between 14 and 18 cents, he said.
The reports of the Pebble talks come amid overall weakness in the category.
Smartwatch sales fell by 32 percent in the second-quarter of 2016 from 5.1 million units to 3.5 million, year-over-year, the first such decline the firm recorded, IDC reported this summer.
Consumers were holding off on smartwatch purchases in anticipation of upgrades in hardware, the report indicated. The expectation of a new operating system from Apple effectively stalled sales of the Apple Watch.
Shipments of basic wearables rose sharply in the second quarter to 22.5 million, representing growth of almost 49 percent to compared with the year-ago period, IDC reported weeks later. However, smart wearables, which involve the use of third-party software, declined 27.2 percent year-over-year.
Basic wearables, which include most fitness trackers, accounted for nearly 83 percent of all wearables shipped during the quarter, the firm said.
Fitbit was the leading firm in the overall wearables category, with 5.7 million shipments, holding 25.4 percent market share, according to IDC. The category was rounded out by Xiaomi, Apple, Garmin and Lifesense.
“Despite Apple’s continually cheery talk about sales of its watch, the broad wearables market seems to be faltering rather than gaining traction,” Charles King, principal analyst at Pund-IT, told the E-Commerce Times.
The category is “struggling mainly because there’s still a dearth of apps or use cases,” said Jitesh Ubrani, senior research analyst for worldwide mobile device trackers at IDC.
“The smartwatch category is still heavily reliant on the smartphone and doesn’t offer a differentiated enough experience to justify the added cost,” he told the E-Commerce Times.
“Apart from that, many users still aren’t satisfied with the design or battery life,” Ubrani pointed out. “However, Fitbit and to some extent Pebble do have great design and battery life compared to other smartwatches out there, so it’ll be interesting to see how this plays out.”