What happened
Shares of Masimo (MASI 0.67%) were tanking 35.2% as of 12:37 p.m. ET on Wednesday. The steep decline came after the medical technology company provided its fourth-quarter update following the market close on Tuesday.
Masimo's results were actually pretty good. The company reported revenue of $327.6 million, up 11% year over year. It generated adjusted earnings of $1.21 per share in the fourth quarter. Both results beat consensus Wall Street estimates.
However, investors were not happy at all about Masimo's other big news in its fourth-quarter update. The company announced that it plans to acquire Sound United for $1.025 billion.
Image source: Getty Images.
So what
The skepticism about the decision to buy Sound United isn't surprising. Sound United is a consumer technology company that doesn't focus on healthcare. That doesn't appear to be a great fit.
But Masimo CEO Joe Kiani defended the reasoning behind the acquisition. He stated in Masimo's press release, "We see significant opportunities to cross-leverage technologies, bringing Masimo's clinically superior solutions into the home and on-the-go as well as bringing Sound United's premium technologies into the hospital to advance our hospital automation connectivity and cloud-based technologies."
In particular, Kiani thinks that the Sound United deal will help accelerate the adoption of Masimo's healthcare-focused wearables and its home-based telemedicine products.
Now what
After Masimo's huge sell-off today, can the healthcare stock rebound? Probably so. The Sound United acquisition will boost Masimo's earnings right out of the gate. But some investors could wait to see how well the integration with Sound United goes before their confidence in Masimo is restored.
