Peloton Looking for Investor Like Apple to Buy 20% of Company
Peloton is looking for a major company like Apple or Amazon to buy a stake of around 20 percent in its business in an effort to improve the company's fortunes amid dwindling demand for its products and fierce competition from services like Apple Fitness+, according to a report from Bloomberg.
Sources believed to be familiar with the matter speaking to Bloomberg's Mark Gurman and Ed Hammond claim that Peloton is seeking a big-name corporation or private equity firm that could help to validate Peloton's business in a show of confidence with a significant investment. The company is reportedly already contacting potential buyers, but the process remains at an early stage.
Following months of bleak news about Peloton's "precarious state" as demand for the company's products has dried up, including the revelation that it had halted production of its bikes and treadmills, Apple was floated as a potential buyer of the troubled fitness business at the start of this year.
In January, it emerged that Peloton was temporarily stopping production of its connected fitness products for up to six months due to a "significant reduction" in consumer demand, a pressing need to control costs, and amplified competitor activity. As a business, Peloton has high customer acquisition costs, translating to high product pricing. Toward the end of last year, the company reduced the price of its entry-level bike by almost 20 percent to $1,495 in an attempt to drive up sales through the end of 2021. It then emerged that the company was planning to lay off 41 percent of its sales and marketing staff.
The company's fiscal forecasts did not take into account new delivery and setup fees between $250 and $350 that customers had to pay on top of the cost of the Bike or Tread. In addition, Peloton saw low email capture rates for its $495 strength training product, "Peloton Guide," and has struggled to rekindle momentum after heightened interest in its products during lockdowns in 2020 stalled. There are also indications that Peloton is losing market share in the connected fitness industry.
Peloton CEO John Foley said that the company is "taking significant corrective actions to improve our profitability outlook and optimize our costs." The Information reported that Peloton's production halt and the precarious state of its business looks like a prelude to an acquisition by a bigger company, positing that Apple is the ideal candidate to buy Peloton:
If Peloton is to have a future, it would be better off as part of a bigger, more diversified company. Apple is an ideal candidate to take on that project. It has the Fitness+ subscription service for classes and it markets the Apple Watch as a device that can help with jogging and other exercise activities. It could close Peloton's stores and sell the equipment through its own stores. And hey, after today, Peloton's market capitalization is down to $7.9 billion. Cook could pay for that by dipping into the change jar in his kitchen.
The idea of Apple acquiring Peloton then gathered steam among some market observers, with the possibility being weighed up by The Motley Fool, Inc., and more. Even so, Apple has expressed no interest in acquiring Peloton or buying a stake in the company.
It is highly unlikely that a company like Apple could acquire Peloton's entire business by aggressive means since Peloton co-founder John Foley is part of a group that controls the company with super-voting stock, while CEO Barry McCarthy has said that this sort of deal is not his wish.
Currently, Peloton's main goal appears to be to obtain a single, significant investment from a well-known backer, rather than be acquired in its entirety. Receiving a major new supporter like Apple or Amazon could help to calm panicked investors, but the news that the company was seeking further investment caused Peloton shares to fall further this week. The stock is already down around 80 percent over the past year.
Apple may also be disinterested in any stake in Peloton due to possessing its own connected fitness brand, Apple Fitness+. Analyst Neil Cybart previously highlighted how Peloton is actively threatened by Apple Fitness+, not least because it is considerably cheaper, costing up to $388.01 less annually for digital classes alone. Cybart cautioned that without major changes in 2022, "Peloton is on track to be a Fitbit 2.0 - a company unable to compete with the giants subsidizing health and fitness tracking as an ecosystem feature." Peloton will report its latest quarterly earnings next week.