Question 18 (30 points) Listen In January 2021, Alphabet (Google) finally closed on its acquisition of Fitbit Inc (FIT) for $7.35 per share or roughly $2,100 million, after announcing the transaction in November 2019. Fitbit has sold more than 100 million devices, supporting over 29 million active users globally. Growth in wearabes is anticipated to be 8.0% per annum through 2030. In 2019, despite revenues exceeding 51.4 billion, Fitbit generated negative cash Nows. With Alphabet's resources and global platform, Fitbit will be able to accelerate innovation in the wearables category, scale faster, and improve efficiencies. Alphabet therefore expects cash flows to be a modest $30 million in the following year. Google's cost of capital is 10.0% 1. Based on the data provided above, what growth rate in cash flows is required to cover the cost of acquisition? Do you agree with Google's decision to acquire Fitbit? Why? (show calculations: 10 points) [ER T-(CF,/C)] 2. Using the exhibit below, assess the performance of Fitbit. Does this change your decision to acquire the company? (support answer with financial ratior; 10 points) 3. Based on our case study, what other initiative(s) should Alphabet implement to address its main challenge(s) in diversification? Briefly describe (10 points) FITBIT (5000) Revenue Cost of revenue Gross profit 2019 2018 2017 2016 1,434,788 1,511,983 1,615,519 2,169,461 1.007116 908.404 924,618 1.323 577 427,672 603.579 690,901 845,884 R&D expense Sales & marketing General & administrative Change in consideration Operating income 300,354 329,800 118,231 332,169 344,091 116,627 343,012 415.042 133,934 320,191 491,255 146,903 (320,713) (189,308) (201,087) (112,465) Other income, net Income tax expense Net income 11.648 5,166 6,443 3.170 11.646 1.687 82.548 6,518) (320,711) (185.829) (277.192) (102,777) Total current assets PPE, net Other assets Total Assets 1,119,752 1,311,811 1,384,365 1,480.571 82,756 106,286 104.908 76,553 165.578 97.450 92.802 264,892 1,368,086 1,515,547 1,582,075 1,821,926 Total current liabilities Other liabilities Total Liabilities 764,610 116,213 880,823 719,383 60,226 779,609 701,300 56,812 758,112 756,340 67,054 $23,394 Shareholders' equity 487,263 735,938 823,963 998,532 Question 18 (30 points) Listen In January 2021, Alphabet (Google) finally closed on its acquisition of Fitbit Inc (FIT) for $7.35 per share or roughly $2,100 million, after announcing the transaction in November 2019. Fitbit has sold more than 100 million devices, supporting over 29 million active users globally. Growth in wearabes is anticipated to be 8.0% per annum through 2030. In 2019, despite revenues exceeding 51.4 billion, Fitbit generated negative cash Nows. With Alphabet's resources and global platform, Fitbit will be able to accelerate innovation in the wearables category, scale faster, and improve efficiencies. Alphabet therefore expects cash flows to be a modest $30 million in the following year. Google's cost of capital is 10.0% 1. Based on the data provided above, what growth rate in cash flows is required to cover the cost of acquisition? Do you agree with Google's decision to acquire Fitbit? Why? (show calculations: 10 points) [ER T-(CF,/C)] 2. Using the exhibit below, assess the performance of Fitbit. Does this change your decision to acquire the company? (support answer with financial ratior; 10 points) 3. Based on our case study, what other initiative(s) should Alphabet implement to address its main challenge(s) in diversification? Briefly describe (10 points) FITBIT (5000) Revenue Cost of revenue Gross profit 2019 2018 2017 2016 1,434,788 1,511,983 1,615,519 2,169,461 1.007116 908.404 924,618 1.323 577 427,672 603.579 690,901 845,884 R&D expense Sales & marketing General & administrative Change in consideration Operating income 300,354 329,800 118,231 332,169 344,091 116,627 343,012 415.042 133,934 320,191 491,255 146,903 (320,713) (189,308) (201,087) (112,465) Other income, net Income tax expense Net income 11.648 5,166 6,443 3.170 11.646 1.687 82.548 6,518) (320,711) (185.829) (277.192) (102,777) Total current assets PPE, net Other assets Total Assets 1,119,752 1,311,811 1,384,365 1,480.571 82,756 106,286 104.908 76,553 165.578 97.450 92.802 264,892 1,368,086 1,515,547 1,582,075 1,821,926 Total current liabilities Other liabilities Total Liabilities 764,610 116,213 880,823 719,383 60,226 779,609 701,300 56,812 758,112 756,340 67,054 $23,394 Shareholders' equity 487,263 735,938 823,963 998,532
