Peloton Interactive Inc., the early pandemic home-fitness darling that has become a potential takeover target following a sharp drop in its stock price, may face a difficult environment if it chooses a deal with a big-technology firm.
One important factor to consider is regulatory scrutiny. There is currently a chill against large transactions in Washington, where technology companies are being investigated by regulators for their reach and influence, and the Federal Trade Commission recently sued to prevent Nvidia Corp. from acquiring AMD.
“The deal better is worth the headache for the company because whatever they buy will be scrutinized,” said Anurag Rana, a senior analyst at Bloomberg Intelligence, in an interview Sunday.
According to people familiar with the matter who asked not to be identified because the discussions are private, Peloton is evaluating interest from potential suitors and is working with an adviser to explore options. They stated that the takeover interest in the New York-based manufacturer of exercise bikes and treadmills is exploratory and may not result in a transaction.
Some of the biggest names in technology and fitness are said to be looking at Peloton, whether for acquisition, an investor, or some other kind of tie-up. According to the Wall Street Journal, Amazon.com Inc. has spoken with advisers about a potential deal. Analysts have also speculated that Apple Inc. may be interested in purchasing the company. According to the Financial Times, Nike Inc. is also considering a separate bid for Peloton.
Peloton did not respond immediately to an email requesting a comment. Amazon, Nike, and Apple did not respond to requests for comment.
Peloton’s stock has dropped more than 80% from its January 2021 high, owing to a slowdown caused by the relaxation of pandemic restrictions. It’s a far cry from the early days of the pandemic when demand for the company’s products outstripped supply.
Based on Friday’s official market close of $24.60, the company is currently valued at slightly more than $8 billion, which is less than its September 2019 initial public offering price of $29. Following the Journal report, the stock rose as much as 43 percent in extended trading on Friday.
Last month, activist investor Blackwells Capital LLC demanded that the company fire co-founder and CEO John Foley and pursue a sale. According to Blackwells’ letter, potential buyers could include Apple, Nike, and Walt Disney Co.
“Although Peloton’s star was propelled during Covid, it’s become increasingly clear that it’s a much smaller (still impressive) business than prior perception,” wrote BMO Capital Markets analysts Simeon Siegel and Daniel Stroller in a note Sunday. “One has to wonder if the brand is simply too small to matter to the world’s largest corporations.”
Analysts questioned whether Peloton’s 2.8 million subscribers were similar to those of Nike, Amazon, or Apple. “If the world’s most powerful companies were not interested when Peloton was expected to grow 15 to 100 million subscribers, are they looking for a fixer-upper now that engagement/demand has stalled?” they added.
Rana and Bloomberg Intelligence senior analyst Poonam Goyal wrote in a short note Friday that Peloton would “only serve as a distraction” for Amazon, with few synergies for a company focused on the cloud and logistics. They stated that an athleisure company “would be a better fit.”
“Active-wear brands already embody the workout scene through runs and other activities,” Goyal wrote in an email Sunday. “Having a workout machine that can incorporate their ambassadors and items could help them further establish themselves in the active community.” Mirror was purchased by Lululemon for the same reason.”
While Peloton is already a market leader in at-home fitness, greater product variety, according to Amine Bensaid, an analyst at Bloomberg Intelligence, could help it recoup demand, in an email Sunday.
Apple and Peloton may appear to be a good fit because Apple is already expanding into fitness, but there are some potential drawbacks. Peloton’s large, expensive hardware contradicts Apple’s traditional product-turnover strategy, and the company has its own fitness software.
Nonetheless, Wedbush Securities analyst Dan Ives believes Apple may have strategic reasons to pursue Peloton.
“Apple may be forced into this deal if Amazon, Nike, or possibly Disney aggressively pursues Peloton in a defensive blocking strategic move,” Ives wrote in a note Sunday. “On the offensive front, Apple would be able to leverage the Peloton services and flywheel through its Fitness+ subscription service and Apple Watch strategy to significantly bulk up its health-care initiatives, which have been a key strategic linchpin.”