Last Friday we got the news I've been waiting ages for: A suitor finally stepped up to the plate to acquire Fitbit Inc. (FIT) .
It is old news now, but the narrative that was pitched over the past couple weeks was correct. Alphabet Inc. (GOOGL) was in pursuit and offered $2.1 billion, or $7.35 a share, for Fitbit, which had become a red-headed stepchild since going public in 2015 amid much fanfare. Fitbit's cult stock days long gone, the company never really delivered for shareholders, especially the earlier ones who paid into the high $40s for FIT shares.
As much as I am disappointed by the terms of the deal, I've long maintained that FIT would be better served under the umbrella of a bigger fish with deeper pockets. Fitbit has not held up well to the scrutiny of being publicly traded. Attempts to transform itself away from a low-margin (or no-margin) hardware company have started to bear fruit, but not quickly enough for investors.
Now the great debate about whether another bid or bids will emerge for Fitbit is well underway. As much as I'd hoped for more, I took the money and ran, closing my position late Friday. It has been a long, but ultimately profitable trade; my average cost of $4.50 was built painfully, buying on a dip now and again, and there were many from which to choose.
For those investors determined to hang in there in case a higher bid emerges, I wish you well. I am just not willing to take the risk that somehow the current deal falls apart, which would likely push FIT back to the $4-to-$5 range or perhaps lower.
I've held other value-oriented names over the years that were acquired and I can't think of many cases when I was not a bit disappointed by the takeout price. That does not mean the trades were not profitable, but by virtue of owning something, there's usually a predisposition to value it higher than non-owners. Krispy Kreme's acquisition by JAB Holdings is now more than three years old, but that deal still sticks in my crawl.
Unfortunately, companies such as Fitbit that are not profitable and have not been knocking off anyone's socks with forward guidance usually will not command a premium price. So I, for one, am moving on and looking for the next beaten-down name/names where the market's punishment has been too harsh and/or where there may be acquisition possibilities.
There is money to be made in broken initial public offerings (IPOs) or broken cult stocks. In FIT's case it was the combination of a solid balance sheet with lots of cash that provided a fairly long runway, along with a well-known brand name that brought this value investor to the plate. It just took a lot longer than I originally thought.