Peloton Interactive, the maker of high-end fitness equipment and software, has been facing a series of challenges in the past two years. The company’s stock price has plummeted by more than 80% since its peak in 2021, as it struggled to cope with product recalls, supply chain issues, customer complaints, and increased competition. Despite the efforts of its new CEO, Barry McCarthy, who joined the company in 2023 after serving as the CFO of Spotify and Netflix, Peloton’s turnaround has been slow and disappointing. The company’s latest earnings report showed that it missed its revenue and free cash flow targets and pushed back its timeline for returning to growth. As Peloton’s prospects dim, some analysts and investors have speculated that the company could be an attractive acquisition target for Apple, the tech giant that has been expanding its presence in the health and fitness sector. Could Apple be the last resort for Peloton to survive and thrive in the market? This article will explore the reasons behind Peloton’s woes, the potential benefits and challenges of an Apple buyout, and the likelihood of such a deal happening.
Peloton’s Fall from Grace
Peloton was once hailed as one of the fitness industry’s most innovative and successful companies. It offered a unique combination of hardware, software, and content that appealed to millions of consumers who wanted to exercise at home with interactive and personalized guidance. Peloton’s bikes and treadmills, which were equipped with touchscreens and speakers, allowed users to stream live and on-demand classes from instructors and celebrities, as well as track their performance and compete with other members. Peloton also had a loyal and engaged community of users who shared their feedback and stories on social media and online forums. The company’s revenue proliferated, reaching $4 billion in fiscal 2021, up from $915 million in fiscal 2019. Its subscription base also expanded, reaching 5.4 million in fiscal 2021, up from 1.4 million in fiscal 2019.
However, Peloton’s success also attracted the attention of competitors, regulators, and critics. In 2020, the company faced a patent infringement lawsuit from Icon Health & Fitness, the maker of NordicTrack and iFit, which claimed that Peloton had copied its technology and features. In 2021, the company faced a massive recall of its treadmills after reports of injuries and deaths involving children and pets who were trapped under the machines. The recall cost the company $165 million in revenue, damaged its reputation, and damaged customer trust. In 2022, the company faced supply chain disruptions and delivery delays as the global pandemic and chip shortage affected its production and logistics. The company also faced increasing competition from rivals such as Apple, Amazon, and Lululemon, who launched their fitness products and services, such as Apple Fitness+, Amazon Halo, and Mirror. These competitors offered lower prices, wider distribution, and more diverse content than Peloton and threatened to erode its market share and margins.
Apple’s Interest in Peloton
Apple has been one of the most prominent and successful players in the health and fitness sector, with its products and services such as the Apple Watch, the iPhone, the Health app, and Apple Fitness+. The company has been investing heavily in this area, as it sees it as a strategic opportunity to grow its user base, revenue, and ecosystem. Apple’s CEO, Tim Cook, has said that improving people’s health would be “Apple’s greatest contribution to mankind” and that the company has a “long-term vision” for health. Apple has also been rumored to be working on new products and features that could enhance its health and fitness offerings, such as a blood pressure monitor, a glucose sensor, and a virtual reality headset.
Given Apple’s ambitions and capabilities in this sector, some analysts and investors have suggested that Apple could be interested in acquiring Peloton as a way to boost its competitive edge and expand its portfolio. Peloton could offer Apple several advantages, such as:
- Access to a large and loyal customer base, who could be converted to Apple’s ecosystem and services
- Access to a rich and diverse library of fitness content, which could complement and enhance Apple Fitness+
- Access to a high-quality and innovative hardware and software platform which could integrate with Apple’s devices and technologies
- Access to a talented and experienced team of engineers, designers, and instructors who could bring new ideas and skills to Apple
- Access to a valuable brand and intellectual property, which could strengthen Apple’s position and reputation in the market
The Challenges of an Apple Buyout
However, an Apple buyout of Peloton would also face several challenges and risks, such as:
- The high price tag could deter Apple from making a bid. Peloton’s market capitalization is currently around $7 billion, which means that Apple would have to pay a significant premium to acquire the company. Apple has been known to be frugal and selective in its acquisitions, and it has rarely made deals worth more than $1 billion.
- regulatory scrutiny, which could delay or block the deal. Apple is already facing antitrust investigations and lawsuits in several markets, such as the US, the EU, and China, over its alleged anti-competitive practices and market dominance. Acquiring Peloton could raise more concerns and objections from regulators and competitors, who could argue that the deal would reduce consumer choice and innovation in the fitness industry.
- The cultural clash could hamper the integration and collaboration of the two companies. Apple and Peloton have different histories, values, and cultures, which could create conflicts and friction among their employees and leaders. Apple is known for its secrecy, control, and uniformity, while Peloton is known for its openness, flexibility, and diversity. Apple and Peloton also have different approaches to product design, development, and distribution, which could cause compatibility and quality issues.
The Likelihood of a Deal
Given the potential benefits and challenges of an Apple buyout of Peloton, what is the likelihood of such a deal happening? According to Deepwater Asset Management, a Minneapolis-based investment firm that has a track record of accurate forecasts, Apple will acquire Peloton in 2024 as part of its strategic move to dominate the health and fitness sector. The firm predicts that Apple will pay $12 billion for Peloton, which represents a 71% premium over its current market value. The firm also predicts that the deal will be approved by regulators, after some concessions and remedies from Apple, and that the deal will be accretive to Apple’s earnings and growth.
However, not everyone agrees with this prediction. Some analysts and investors have expressed doubts and skepticism about the possibility and rationale of an Apple buyout of Peloton. They argue that Apple does not need to acquire Peloton, as it already has a strong and growing presence in the fitness sector, and that it can achieve its goals through organic growth and innovation. They also argue that Peloton is not worth Apple’s price, as it faces declining demand, rising costs, and fierce competition. They also argue that the deal would create more problems than solutions for Apple, as it would expose it to more regulatory and legal challenges and disrupt its culture and operations.
Therefore, the verdict on whether Apple will buy Peloton in 2024 is still uncertain and controversial. While some see it as a logical and inevitable outcome, others see it as an unlikely and unnecessary scenario. Only time will tell who is right and who is wrong.