Google's parent company Alphabet (NASDAQ:GOOGL) (NASDAQ:GOOG) is looking for its way into the wearable technologies market. Alphabet has reportedly made fitness-smartwatch maker Fitbit (NYSE:FIT) an offer to acquire the company. Details on the offer have not yet been made public. Fitbit may be open to the idea, as the company engaged investment bank Qatalyst Partners last month about the possibility of selling itself. 

Apple (NASDAQ:AAPL) has consistently dominated the smartwatch space, and it has the revenue growth to show it. Apple has 46.4% of the market share of smartwatches. Within minutes of the report of Alphabet's bid to buy Fitbit being published, Fitbit's stock grew 38%, and Alphabet's stock grew 2%.

If Alphabet acquires Fitbit, it will be its first time in the smartwatch space, and the deal could result in great returns for investors. 

The struggle to break into smartwatches 

Google previously worked with other companies on smartwatches that run on its software, but the company has yet to establish a dominating presence in the wearable technologies space through its own branded products. 

Fitbit smartwatches

Image Source: Fitbit

Google has so far been unable to break into the smartwatch space and a deal with Fitbit would open a door to new opportunities. Recently, Google made progress in pushing its own devices like its line of Pixel products and adding Fitbit to its portfolio could very likely continue to push those efforts.

The pioneer of wearable devices

Fitbit was a pioneer of the wearable technologies phenomenon and is currently forming partnerships with health insurers, including Humana (NYSE:HUM) Cigna (NYSE:CI) and Blue Cross Blue Shield Association. In addition to these partnerships, Fitbit has been diversifying its revenue stream by making tuck-in acquisitions in the healthcare market. The size of the wearable technologies market was valued at $19.6 billion in 2015 and growing at CAGR of 16.2% to reach $57.6 billion by 2022.

Fitbit fitness trackers monitor users' daily steps, distance traveled, calories burned, floors climbed, sleep quality and duration, and heart rate. As Fitbit is able to monitor all these factors, analysts attribute a lot of the company's future value to its health data.

In August, Fitbit signed a contract with the Singapore government to provide fitness trackers and services in a health program that could reach up to 1 million users. This deal provides free health trackers to citizens who pay a monthly $10 subscription. 

Fitbit's Versas

Fitbit cut its 2019 revenue forecast in July due to disappointing sales of the Versa Lite, its cheapest smartwatch. The Versa Lite is priced at $160 and can track workouts and heart rate; the difference between the full version and Lite is that the full Versa can store music directly and is priced at $200. The Versa 2 launched in August with the addition of Alexa, Amazon.com's (NASDAQ:AMZN) voice assistant, music storage, and online payments. 

Google and Fossil

Although the acquisition of Fitbit would be a huge step for Google in the wearable space, Fossil Group (NASDAQ:FOSL)  sold the intellectual property related to smartwatch technology under development to Google for $40 million back in January. Google's plans for these assets are not clear at this time and the deal is based on "new product innovation that's not yet hit the market," according to Greg McKelvey, chief strategy and digital officer of the Fossil Group.

Fossil Group is developing technology that could be "brought out in a more expansive way," said Stacey Burr, who is VP of product management at Google's Wear OS. And by striking a deal with Google, the technology can continue to be used with Fossil Group products but also new partners like Fitbit. "It's about bringing great features to the widest numbers of on-the-go consumers," said Burr.

Is it smart?

While Apple is dominating the wearable space, Google could begin to take the upper hand if it acquires Fitbit. With the Versa 2 implementing Amazon.com technologies into its software, Google would be able to implement Alexa into other Fitbits and its own Google products, like the Pixels. So yes, by acquiring Fitbit, Google would have a much stronger presence in the wearable technologies space and help grow its portfolio of homegrown products, as well as increase its broader market share to people who want to pair their smartphones with wearables. 

If Alphabet does acquire Fitbit, it will likely use its cash. As of July, Google had a financial reserve of $117 billion which overtook Apple's cash pile of $102 billion. Google is under fire to deplete its cash pile so a cash deal with Fitbit is probable. Although Alphabet has been holding onto its financial reserves, it is using it to break into new markets. For example, last year it spent $25 billion on real estate to buy Google office spaces in New York and building data centers for its business in cloud-computing. 

Investors seeking to capture the growth in the wearables market would do well to consider buying Alphabet stock. Apple's stock carries a trailing P/E ratio of 20.64 while Alphabet's is 27.10. When factoring in earnings growth, the two companies are about the same. Alphabet's five-year PEG (Price to Earnings Growth ratio) is 2.08 and Apple's is 2.11. So while Apple trades at a slight discount to Alphabet, the search engine giant is more diverse and has more room to grow in the wearables market. Buying Alphabet shares to hold for the long-term would be a good move for investors watching the smartwatch space.