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Peloton’s Potential Apple Buyout Peloton’s Potential Apple Buyout

Two years have passed since Barry McCarthy, the former CFO of Spotify (SPOT) and Netflix (NFLX), took the helm at Peloton Interactive (PTON), succeeding co-founder John Foley. The move followed a 76% plummet in PTON’s stock price, amid robust double-digit returns in U.S. stock markets in 2021.

McCarthy embarked on a turnaround plan, publicly acknowledging that turnarounds are neither simple nor swift. Nevertheless, PTON stock continued to nosedive to new all-time lows – notably after the release of its fiscal Q2 earnings earlier this month.

As Peloton’s turnaround continues to drag on, speculation looms about a potential buyout by a tech heavyweight like Apple (AAPL). We’ll delve into this possibility in this article.

The Elusive Turnaround

McCarthy recently updated shareholders about Peloton’s turnaround efforts earlier this month, highlighting several successful initiatives:

  • Peloton’s bike rental program, which spurred considerations of a similar model for other markets, such as corporate wellness
  • A thriving partnership with Amazon (AMZN) and Dick’s Sporting Goods (DKS), resulting in a 74% YoY unit growth in the channel in the latest quarter
  • Improved performance of its subsidiary Precor, which yielded $70 million in Q2 revenue

Conversely, some initiatives, such as the co-branded bike launch with the University of Michigan, stumbled, prompting its discontinuation. McCarthy also cited shortcomings in member support but assured that Peloton revamped that team.

During the fiscal Q2 earnings call, McCarthy conceded a lack of product innovation but pledged “significant product innovation” in the next couple of years.

Extended Growth Timeline

McCarthy’s primary goals for Peloton were to restore revenue growth and transition it from a cash-consuming entity to one capable of generating free cash flows.

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In his fiscal Q2 shareholder letter, McCarthy revised the timeline, shifting the company’s target to become free cash flow positive to fiscal Q4 instead of the initially forecasted full fiscal year 2024. Revenue growth expectations were also delayed until fiscal Q4, diverging from previous projections.

Stock Outlook

Peloton has long been out of favor with analysts, and its underwhelming 2024 guidance failed to sway Wall Street. Analysts have assigned PTON stock a consensus rating of “Hold,” although the mean target price of $7.55 hovers nearly 67% above the recent closing price.

Apple’s Potential Interest

Rumors of Apple’s potential purchase of Peloton have persisted. Apple, known to focus on healthcare, received validation for this speculation when Gene Munster, co-founder of Deepwater Asset Management, suggested that the “stars are starting to line up” for an acquisition. He highlighted Cook’s healthcare aspirations, Apple’s subscription revenue growth emphasis, and Peloton’s alignment with Apple’s overall subscription strategy, boasting around 3 million connected fitness subscribers.

Amazon and Nike (NKE) have also been linked to Peloton acquisition talks. Amazon recently pursued acquisitions, finalizing the purchase of One Medical but abandoning the planned iRobot (IRBT) acquisition due to regulatory obstacles in Europe.

Opinions on Apple’s potential purchase of Peloton are polarized, but the fitness company may ultimately attract a suitor, given the escalating healthcare opportunities perceived by tech giants like Microsoft (MSFT) and Alphabet (GOOG).