The tech titan would be Peloton’s white knight.
To say that Peloton Interactive (PTON 0.34%) has been struggling mightily would be an understatement. After experiencing monster success during the depths of the pandemic, the business has hit a rough patch, with weak demand, falling sales, and ongoing net losses.
To solve these notable issues, it might make sense for Peloton to be acquired, which could potentially get it on a better financial path. And maybe that suitor should be Apple (AAPL 1.37%), the dominant consumer tech juggernaut.
Here are two things that 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, that are supported by its own proprietary software offerings. Peloton operates a similar playbook. However, Apple has found tremendous success. And it’s insanely profitable, boosted by a powerful brand and proven pricing power, something Peloton so desperately wants to have.
To be clear, Apple already has a hand in the wellness space. The Apple Watch and Fitness+ app are its key offerings here. And CEO Tim Cook even went so far as to say that the company’s biggest contribution to humanity “will be about health.” You can easily argue that Peloton also feels the same way about its own business.
From a strategic perspective, buying Peloton could make sense. It would add to the over 2.2 billion active Apple devices out there in the world. Peloton users are probably also coming from higher-income households that Apple could cross-sell to. And Apple could collect more fitness data that could bolster its ambitions in the health sector.
There are interesting integration opportunities as well. If a consumer signs up and pays for Peloton equipment with an Apple Card, maybe a discount or other incentives will be offered. The Fitness+ and Peloton digital apps could be combined. And Apple Music could provide the tunes for Peloton’s various workout classes.
In the most recent fiscal quarter (Q3 2024, ended June 29), Apple reported more than $21 billion in net income. And it currently has $52 billion of net cash on its balance sheet. Even if Peloton sold at a huge premium to its current market cap of $1.1 billion, Apple could easily afford the transaction.
2. Peloton is too small
Based on what I just outlined, the deal makes sense. Apple would be a worthy buyer that Peloton shareholders can support. However, it’s also easy to believe that an acquisition isn’t going to happen.
Despite being a gargantuan $3.2 trillion business, Apple’s corporate strategy doesn’t really center on executing huge acquisitions. In 2014, the company completed its biggest deal when it purchased Beats for $3 billion. The price tag for buying Peloton would probably be in the same neighborhood. It’s anyone’s guess if executives would be comfortable doing this, when they could continue using excess cash to buy back shares and pay dividends.
But I can understand why Apple shareholders would approve of such a deal. Even if it happened and it became a waste of capital, Cook and his team at least took a chance on something that seemed to make strategic sense. Apple could easily handle the financial loss in a worst-case scenario.
There’s also the obvious fact that Peloton is tiny by comparison, as it brought in $2.7 billion in revenue in the last 12 months, versus the $386 billion Apple raked in during its trailing-12-month period. Peloton doesn’t look like it can move the needle for the tech giant, even if its sales skyrocketed under Apple.
Apple wants to sell products that target the entire global population. Peloton doesn’t fall into this category. While I’m not sure a deal will ever be on the table, the exercise business would certainly benefit more if it happened.
Neil Patel and his clients have no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple and Peloton Interactive. The Motley Fool has a disclosure policy.