Peloton is biking uphill and falling behind but this might not be the end of its exercise...
January 22, 2022
The year has barely gotten out of the gate, and Peloton‘s (NASDAQ: PTON) troubles have only increased.
The once superstar of the Covid19 pandemic has apparently been experiencing sluggish demand for its bikes and treadmills. It’s seemingly so bad that – according to a CNBC report – the company is looking to stop producing its bikes for two months and treadmills for six weeks!
And the bad news doesn’t just end there. Media reports suggest Peloton has called management consulting firm McKinsey to review its cost structure. Looks like Peloton is about to slash sales teams and e retail storefronts in a bid to plug its cash burn in the face of a post-Covid19 demand slump.
Peloton once looked like the Apple (NASDAQ: AAPL) for fitness enthusiasts, but that dream was never realized.
That’s a long-winded way of getting to my outrageous prediction.
At the right price, I believe Peloton is going to be acquired.
Because I believe one potential killer application for the “meta” world, promoted by Zuckerburg, is fitness. Connected fitness experience can be enhanced manifold using augmented reality (AR) technologies. AR has the potential of giving you the feel and presence of training with your favorite trainer. There are already shades of this world in today’s connected fitness world, be it via Peloton, Nordic’s iFit, or Apple’s Fitness+. But I believe AR can provide a genuinely immersive and gym-like experience, and it can be a game-changer.
So, which company might be a suitor of Peloton?
Apple might appear to be a natural contender. But Apple rarely makes acquisitions on the multibillion-dollar scale. And Peloton doesn’t really have significant IP to offer that might bolster Apple’s competing Fitness+ offering. More broadly, Apple probably has the strongest, that too perhaps by a wide margin, connected fitness portfolio with the Apple Watch and associated services.
Then what? Who’s a natural acquirer?
I have a hunch that Alphabet (NASDAQ: GOOG) will bite the bullet.
Alphabet has been a laggard in wearable and associated service offerings. And it has shown a penchant for buying companies. It acquired Fitbit for over $2 billion. In fact, Alphabet hasn’t been shy of spending billions on acquisitions. HTC’s Pixel smartphone unit, Nest, Fitbit, Looker, and Motorola Mobility were multibillion-dollar deals. Essentially, acquiring Peloton might nicely complement their Fitbit business. And of course, underlying wearables are a lot of valuable data, something we all know Google is always hungry for.
So there you have it. Not one but two outrageous calls. One, Peloton, is likely to be acquired in 2022. However, that is likely to happen at a substantially lower price than today’s company’s $7 billion market valuation. And two, I believe Alphabet will be the one bailing out Peloton.
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