Peloton is a company dedicated to the sale of high-end exercise bikes and treadmills, accompanied by a fitness service. It is very popular in the USA and during the confinement of the country it experienced a quite logical boom. However, in recent times it has been plagued by a series of serious problems, the main one being the drop in demand.
The situation coincides with the launch of Apple Fitness+ just over a year ago, although Peloton’s problems cannot be blamed solely on this service. And yet, it is a situation that is very reminiscent of that suffered by Fitbit with the Apple Watch. The acquisition of a third party is therefore predictable.
Falling demand, rising costs and liquidity issues for Peloton
On January 13, 2021, Peloton Interactive Inc. reached its highest stock price since its debut in 2019. At that time, the capitalization of the young company reached $50 billion. A year later, the stock fell from $165 to just $27.
Peloton has been riding the home exercise wave triggered by the coronavirus pandemic lockdown since the start of 2020. Its bikes and treadmills have become hugely popular, driving subscriptions to use the accompanying fitness service. Of course, being high-end equipment, they were far from becoming mainstream products.
With the end of the confinements and the return of a more or less normal life, the demand for Peloton has been reduced. And the problems started piling up:
As a result, the options are closing for the management of the company. Last week, he announced that he would hire McKinsey to review its cost structure, as if we were dealing with a startup and not a $50 billion company. Those of us who have worked at consulting firms like this know what is coming: canceling the Precor acquisition that cost $420 million to make money, closing all physical stores, outsource production and reduce sales and marketing staff.
Objective: acquisition by a third party
Peloton is playing against time. The succession of problems causes you to start burning money. Bringing McKinsey onto the scene, as happens in situations like this, has two purposes: to have a scapegoat when tough decisions have to be made (e.g. layoffs) and to make up the company to be acquired by a third party. .
This is where Apple is seen as a potential buyer of Peloton. Publications such as The Motley Fool or The Information feature Apple’s name as Peloton’s buyer, although there are also other names such as Amazon or Google that feature in the pools. As in these types of situations, the abundance of liquidity, a large customer base and complementarity with Apple are all mentioned as possible advantages.
Whenever there is a manufacturer on a market close to that of Apple, Cupertino places itself as interested in its acquisition.
But rarely is such a purchase considered from Apple’s perspective. The first thing is to see if it is a product with the possibility of becoming massive or if it is a niche. As Peloton’s declining demand shows, there’s no indication it will be mainstream. Peloton’s technology and patents would therefore not sit well in Apple’s portfolio. The only thing of value would be dedicated R&D and healthcare engineering staff, which they can pair with attractive Cupertino job offers.
This whole story is reminiscent of Fitbit, which ended up being acquired by Google. Another similar case was that of Bragi, the pioneering maker of true wireless headphones that also went on sale. And it is that this type of business highlights the need to have a solid ecosystem to rely on.