While Apple is known to be cautious on doing big deals (last one was $3 billion for headphone maker Beats in 2014), a bid for Peloton makes sense.
“Acquiring Peloton would be a major strategic coup and catalyze the company’s aggressive health and fitness initiatives over the coming years. With ~2.8 million paid subscriptions today and a very strong/unique competitive moat, Apple acquiring Peloton would be both an offensive and defensive acquisition in our opinion,” Ives said in a new note.
Continued Ives, “On the defensive front, if Peloton was acquired by Amazon or Nike this would propel the winning bidder on the health and fitness front as well as gain a major foothold into the living rooms of consumers globally. On the offensive front, Apple through its Fitness+ subscription service and Apple Watch strategy would be able to leverage the Peloton services and flywheel to significantly bulk up its health care initiatives which have been a key strategic linchpin for CEO Tim Cook.”
Ives assigns a takeout valuation of $12 billion to $15 billion for Peloton.
The speculation from Ives comes on the heels of a new WSJ story late Friday saying Amazon and Nike have expressed interest in Peloton. Shares of Peloton surged 25% to $30.39 in pre-market trading Monday. The stock is back to trading above the $29 IPO price from 2019.
At its pre-market price, Peloton’s market cap stands at roughly $9.3 billion.
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Any buyout of Peloton would arrive against the backdrop of a true mess that has sent shares plunging in recent months.
In a scathing letter in January, activist investor Blackwells Capital — which a source tells Yahoo Finance has amassed a less than 5% stake in the company — demanded Chairman, founder and CEO John Foley be immediately fired.
“Mr. Foley must be held accountable for his repeated failures to effectively lead Peloton,” Blackwells Chief Investment Officer Jason Aintabi wrote in the letter. Aintabi lists a host of grievances with Foley, ranging from putting his wife in a key operational role at the company (apparel leader) to mishandling a safety recall for a treadmill.
Blackwells believes Peloton should put itself up for sale, highlighting Apple, Nike, Sony and Disney as potential suitors.
The letter materialized following a CNBC report that the struggling fitness company would temporarily halt production of its bikes and treadmills due to sluggish consumer demand. The company will reportedly stop producing its bikes for two months and treadmills for six weeks.
Peloton refuted the report, saying it hasn’t halted all production. It also pre-announced quarterly results, which showed a miss on the number of subscribers added.
The company will announce its earnings after the close of trading on Feb. 8.
To be sure, not everyone on the Street is sold on Peloton being a great acquisition candidate even at cheaper valuations compared to one year ago.
“Now, a large company may certainly choose to pay up for Peloton; however, based on our view of the fundamentals, we remain wary about the value Peloton would bring any of the cited companies, given its comparably small size, faltering demand, and declining engagement,” long-time Peloton bear and BMO Capital Markets analyst Simeon Siegel said in a new note of his own on Monday.
Programming note: Wedbush’s Dan Ives will be on Yahoo Finance Live this morning.