Fitbit's (NYSE:FIT) latest earnings report had an all-too-familiar ring to it: hit-or-miss new-product introductions that missed more than they hit. The horrible news that sales of the Ionic smartwatch and Alta HR fell well short of expectations because the company couldn't compete on price or features sent shares tumbling. The stock now sits 35% below the recent highs hit in December.

Although Fitbit promises to offer a suite of new smartwatches to align with consumer preferences, the devices are at risk of becoming commoditized. And though its recent acquisition of health-coaching program Twine Health offers hope that it will be able to eventually boost subscription revenue, it may also point to a different way the fitness-tracker maker can save itself: by becoming a buyout target itself.

Three Fitbit Ionic smartwatches with different band colors

Image source: Fitbit.

On track to burn cash

Without a doubt, Fitbit has been one of the more popular stocks to be considered a takeover candidate since going public in 2016. But as it finds itself caught between high-end smartwatch producers like Apple (NASDAQ:AAPL) and low-end wristband makers like Xiaomi, being bought out by a rival may offer the biggest opportunity for growth.

The problem for Fitbit and its investors is that the device maker has no competitive moat. Anyone can make a fitness tracker, and just about everyone has. It's a crowded field that's hurting sales and squashing any ability to post profits.

Revenue for Fitbit fell 25% in 2017 as losses blossomed to $277 million, from just over $100 million the year before. Adjusted EBITDA went from a $30 million profit to a $52 million loss.

It's a bitter truth that Fitbit, which virtually created the fitness-tracker market, is on the verge of seeing the industry pass it by. As it burns through cash, it runs the risk of flaming out before it has a chance to make the pivot. Though its relevance in the space is on the decline, focusing on the healthcare market allows Fitbit to improve its value to a potential buyer that wants to burnish its own capabilities or break into the market without having to build a product from the ground up.

No end to the list of possible partners

The market researchers at IDC say the worldwide wearable market might grow 18.4% annually through 2021 as shipments rise from 113.2 million to 222.3 million. With Fitbit still the dominant player, Apple might see an opportunity to offer a lower-priced smartwatch alongside its premium-priced Apple Watch. But Apple isn't really known for undercutting its own products.

Garmin (NASDAQ:GRMN), however, could buy the fitness-tracker leader, giving its own smartwatches a significant boost and tie in with its Connect IQ app platform. It's played on the periphery of the healthcare industry, marketing its devices as a way for corporate wellness programs to encourage employees to lead healthy lifestyles, and Fitbit's integration with Twine could provide a meaningful advance to the effort.

Stethoscope on a smartphone on a laptop

Image source: Getty Images. (NASDAQ:AMZN) is also making a big push into healthcare. In addition to potentially delivering prescription drugs, the e-commerce leader is looking into building a new electronic health record platform, as well as a telemedicine one to allow for virtual doctor visits. A fitness device that tracks patient data could be an invaluable tool.

Adding Fitbit's products to its lineup would work for Samsung (NASDAQOTH: SSNLF), too, which said earlier this year that digital healthcare was going to be a priority for its acquisition activity in 2018.

Fitbit could also serve as a stepping stone for companies looking to break into the market. From fitness-apparel companies like Nike and Under Armour to tech giants like Alphabet or Microsoft, which don't currently have wearable devices themselves and may not want to allow Apple to run too far ahead of the field, Fitbit would be a good fit.

The fitness-tracker maker has had a good run but has failed in its efforts to innovate soon enough and diversify quickly enough into new, emerging markets. While Fitbit has cobbled together an impressive array of companies that could help change that dynamic, it increasingly looks like the best use of those technologies will be assisting a bigger competitor in exploiting them -- through a buyout.

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