The European Commission on Tuesday opened an in-depth investigation to assess whether the proposed acquisition of Fitbit by Google would further entrench the search giants market position in online advertising markets.
The Commission is concerned that the proposed deal would further increase the already vast amount of data that Google (GOOGL) could use for personalisation of the ads it serves and displays.
The regulator noted that by buying fitness hardware-maker Fitbit (FIT), Google would acquire the database maintained by Fitbit about its users’ health and fitness, as well as, the technology to develop a database similar to the one Fitbit uses.
Back in November Google entered into an agreement to buy Fitbit, which develops wrist-worn wearable devices such as fitness trackers. The acquisition is part of the search engine giant’s strategy to introduce Made by Google wearable devices into the market.
“The use of wearable devices by European consumers is expected to grow significantly in the coming years. This will go hand in hand with an exponential growth of data generated through these devices,” said EU competition commissioner Margrethe Vestager. “This data provides key insights about the life and the health situation of the users of these devices. Our investigation aims to ensure that control by Google over data collected through wearable devices as a result of the transaction does not distort competition.”
The Commission raised concerns that by increasing Google’s data advantage it would be more difficult for rivals to match the search engine giant’s online advertising services. As a result, the transaction would raise entry and expansion barriers for Google’s competitors for these services. This in turn would mean that advertisers and publishers that would face higher prices and have less choice.
“This deal is about devices, not data. We’ve been clear from the beginning that we will not use Fitbit health and wellness data for Google ads,” Rick Osterloh, Google’s senior VP for devices and services, said in a statement. “As we do with all our products, we will give Fitbit users the choice to review, move or delete their data.”
The Commission will decide by Dec. 9 whether to approve or block the deal.
Meanwhile, GOOGL shares have been on a steep recovery path since dropping to a low in March and are now trading 9% higher than at the start of the year. After the online search giant beat 2Q earnings last week, analysts still see some upside potential in the shares from current levels.
Indeed, the $1,723.50 average analyst price target indicates shares have room to advance another 17% over the coming year. (See Alphabet’s stock analysis on TipRanks)
Five-star analyst Eric Sheridan at UBS last week reiterated a Buy rating on the stock with a $1,600 price target.
“While the overall macro environment remains uncertain, we think GOOGL’s ad business has seen the worst of [short-term] trends & remains very levered to some key [long-term] secular themes: commerce moving online, local & small business recovery as mobility increases & media consumption shifts on a global scale (that benefit YouTube),” Sheridan wrote in a note to investors.
Overall, the Wall Street outlook on the stock remains bullish. The Strong Buy analyst consensus boasts 30 Buys versus 3 Holds.