Two years ago, Peloton Interactive underwent a radical transformation as Barry McCarthy, formerly of Spotify (SPOT) and Netflix (NFLX), assumed the role of CEO, ousting co-founder John Foley. This drastic move followed a staggering 76% plummet in PTON stock, amidst remarkable double-digit gains across U.S. stock markets in 2021.
McCarthy, armed with an unenviable task, embarked on an ambitious turnaround mission. However, the company continues to grapple with nosediving stock prices, hitting new historic lows, particularly after the release of its Q2 fiscal earnings report earlier this month.
Amidst Peloton’s protracted turnaround, it begs the question – could a tech juggernaut like Apple (AAPL) potentially step in and acquire the beleaguered fitness company? This article delves into the debate.
Peloton’s Prolonged Turnaround
The most recent update on Peloton’s recovery efforts was shared by McCarthy earlier this month. Notably, the CEO underscored the success of several initiatives, namely:
- The expansion of Peloton’s bike rental program, prompting consideration of a similar model for other markets, including corporate wellness
- A thriving partnership with Amazon (AMZN) and Dick’s Sporting Goods (DKS), yielding a substantial 74% year-over-year unit growth in the channel for the recent quarter
- The resurgence of its subsidiary Precor, which raked in $70 million in Q2 revenue
However, not all strategies bore fruit. The endeavor to launch a co-branded bike with the University of Michigan faltered, leading to its shelving. McCarthy also acknowledged shortcomings in member support but assured stakeholders of an overhauled approach to this aspect. Moreover, there was an admission of an insufficient product innovation but pledged a wave of significant developments in the coming years.
Extended Growth and Cash Flow Projections
McCarthy’s primary objectives for Peloton include restoring the company to revenue growth and transitioning it from a cash-draining entity to one capable of generating free cash flows. However, the forecast to achieve positive free cash flow for the full fiscal year 2024 has been extended to fiscal Q4. Similarly, the expectation for year-over-year revenue growth has been pushed to fiscal Q4, surpassing initial projections.
Stock Projections
Wall Street analysts have long looked askance at Peloton, and the underwhelming 2024 guidance didn’t assuage their concerns. PTON stock’s consensus rating remains at “Hold,” yet the mean target price of $7.55 stands nearly 67% above the previous day’s closing price.
Apple’s Potential Interest in Peloton
Rumblings of Apple’s potential acquisition of Peloton have intermittently surfaced. Apple purportedly has aspirations in the healthcare landscape. As far back as 2019, Apple’s CEO, Tim Cook, advocated for revolutionizing healthcare, deeming it “Apple’s greatest contribution to mankind.”
Recently, Deepwater Asset Management co-founder Gene Munster weighed in, hinting at favorable conditions for an Apple-Peloton union. Munster cited Apple’s focus on bolstering its subscription revenues, the alignment of Peloton with Apple’s broader subscription strategy, and its roughly 3 million connected fitness subscribers. Additionally, there have been rumors of Amazon and Nike expressing interest in acquiring Peloton, with Amazon having recently finalized the One Medical acquisition, although the iRobot deal was stymied by regulatory obstacles.
Despite polarized opinions on the viability of an Apple-Peloton marriage, the consensus appears to lean toward Peloton finding a suitable partner, especially with tech behemoths like Microsoft (MSFT) and Alphabet (GOOG) recognizing substantial healthcare prospects.
