The technology titan would be Peloton’s white knight.
To say that Peloton Interactive (PTON 0.34%) “struggling mightily” would be an understatement. After experiencing tremendous success at the height of the pandemic, the company has now entered a difficult phase: weak demand, falling sales and persistent net losses.
To solve these notable problems, it might make sense to acquire Peloton, which could potentially put the company on a better financial path. And perhaps that suitor should Apple (AAPL 1.37%)the dominant giant in consumer technology.
Here are two things investors should know about this speculative deal.
1. Apple would be a great buyer
Apple sells incredibly popular hardware products like the iPhone, iPad, and MacBooks, supported by its own proprietary software offerings. Peloton follows a similar game. Apple, however, has had tremendous success. And it is insanely profitable, bolstered by a strong brand and proven Pricing powersomething Peloton wants so badly.
To be clear, Apple is already in the wellness space. The Apple Watch and Fitness+ app are its main offerings here. And CEO Tim Cook even went so far as to say that the company’s greatest contribution to humanity “will be health.” It’s easy to argue that Peloton thinks this about its own business, too.
From a strategic perspective, buying Peloton could make sense. It would add even more to the more than 2.2 billion active Apple devices in the world. Peloton users are also likely to come from higher-income households that Apple could cross-sell to. And Apple could collect more fitness data that could bolster its ambitions in the healthcare sector.
There are also interesting integration possibilities. If a consumer signs up and pays for Peloton equipment with an Apple Card, they may be offered a discount or other incentives. The Fitness+ and Peloton digital apps could be combined. And Apple Music could provide the music for Peloton’s various workout classes.
In its last fiscal quarter (Q3 2024, ended June 29), Apple reported net profit of more than $21 billion. And the company currently has $52 billion in net cash Balance sheetEven if Peloton were to sell at a huge premium to its current market capitalization of $1.1 billion, Apple could easily afford the transaction.
2. Peloton is too small
Based on what I just laid out, the deal makes sense. Apple would be a worthy buyer that Peloton shareholders can support. However, it’s also easy to believe that a takeover won’t happen.
Although Apple is a gigantic $3.2 trillion company, the company’s strategy isn’t really focused on making big acquisitions. In 2014, the company made its biggest deal when it bought Beats for $3 billion. The price to buy Peloton would likely be in the same ballpark. It’s unclear whether executives would be OK with being able to continue using excess cash to buy back stock and pay dividends.
But I can understand why Apple shareholders would agree to such a deal. Even if it were to happen and it would be a waste of capital, Cook and his team at least took a risk that seemed strategically sensible. Apple could easily absorb the financial loss in a worst-case scenario.
Plus, Peloton is tiny in comparison, having brought in $2.7 billion in revenue over the past 12 months compared to the $386 billion Apple brought in over the past 12 months. Peloton doesn’t look like it can compete with the tech giant, even though its revenues have skyrocketed under Apple.
Apple wants to sell products aimed at the entire global population. Peloton doesn’t fall into that category. While I’m not sure a deal will ever be on the table, the fitness business would certainly benefit more if it did happen.
Neil Patel and his clients do not own any stocks mentioned. The Motley Fool owns and recommends Apple and Peloton Interactive. The Motley Fool has a disclosure policy.
