What a Peloton acquisition would mean for Apple, Amazon or Nike

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An acquisition of Peloton could be an additional bid to drive services revenue growth at Apple, according to a UBS analyst.

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Buying Peloton Interactive would make more sense for Apple than for Amazon.com or Nike, according to analysis by


UBS
.

Analyst Arpine Kocharyan said among potential suitors for the connected fitness company,


Nike

(symbol: NKE) and


Amazon

(AMZN) are less likely to move given their different base skills. But Peloton has the potential to drive revenue growth for Apple’s services segment as well as help drive customer loyalty. Kocharyan has a sell rating on Peloton shares.

Peloton saw a boom in sales of its bikes and treadmills during the height of the pandemic, but now demand is returning to normal. Its stock price has fallen about 81% in the past year. Any acquirer would need to see more value for Peloton (PTON) in its own product line than the pandemic darling can achieve as a standalone business for a deal to make sense, Kocharyan said.

In this regard,


Apple

tried to add businesses that generate recurring revenue above the company’s gross margin to its service portfolio while reducing the rate of client churn, she said.

Historically, Apple’s offerings, such as video streaming, music, and Apple care+ have set it apart from competitors. Following the December 2020 rollout of Apple Fitness, an acquisition of Peloton could be an additional offering to drive service revenue growth, the analyst said.

Additionally, Kocharyan also sees significant demographic overlap between Apple and Peloton — she estimates the majority of US iPhone users have annual incomes of over $80,000 — and therefore expects opportunities to grow her audience. connected fitness users.

But while Apple makes the most sense of the three potential bidders, Kocharyan points out that the tech giant is more likely to use excess cash to buy its own stock than to pursue mergers and acquisitions. “In fact, Apple’s annual redemption rate recently increased to around $90 billion from $80 billion,” she said.

A deal with Amazon is unlikely given that it is more focused on offering low-cost options such as Kindle and Echo, which have been sold near cost to encourage additional Amazon purchases. The e-commerce mammoth offers a wearable fitness band called Amazon Halo, but it hasn’t had much success yet. This with the slowdown in Peloton sales leaves the analyst with no confidence that Amazon would be able to topple Peloton.

A deal with Nike is also unlikely given that the sportswear company doesn’t want to be in the material goods business. He once sold a device called the Fuel Band, which showed Nike the challenges of operating a material goods business outside of its core competency, Kocharyan said. Additionally, Nike already offers a Nike Training Club app that provides lessons and guidance.

In April, activist investor Blackwells Capital highlighted the benefits of Apple’s purchase of Peloton, saying the acquisition would make the tech giant a category leader in the digital health and wellness space.

Write to Karishma Vanjani at [email protected]om

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