Two years have come and gone since Barry McCarthy, the former CFO of Spotify (SPOT) and Netflix (NFLX), took the reins as CEO of Peloton Interactive (PTON), relieving co-founder John Foley. This leadership change followed a staggering 76% plummet in PTON stock the previous year, a stark contrast to robust double-digit returns in the U.S. stock markets throughout 2021.
McCarthy’s arrival heralded a turnaround plan, a feat he conceded would be neither simple nor swift, a prophecy realized as PTON stock continued its nosedive to record lows, particularly after the publication of its fiscal Q2 earnings earlier this month.
With Peloton’s recovery extending far beyond initial hopes, speculation has mounted about a potential buyout by a tech giant like Apple (AAPL). Might this be the last-ditch savior for the beleaguered company? We delve into this pressing question in the following analysis.
The Prolonged Road to Redemption
The most recent update on Peloton’s revival, provided earlier this month, revealed that some of the company’s endeavors have borne fruit, including:
- The promising performance of Peloton’s bike rental program, triggering contemplation of a similar business model’s expansion into other markets such as corporate wellness
- The successful partnership with industry titans Amazon (AMZN) and Dick’s Sporting Goods (DKS), yielding a staggering 74% year-over-year unit growth in the channel during the most recent quarter
- The resurgence of its subsidiary Precor, which raked in $70 million in Q2 revenue
Conversely, Peloton acknowledged several missteps, including underwhelming sales from the launch of a co-branded bike with the University of Michigan, consequently leading to the shelving of the project. McCarthy also lamented the company’s failure to meet customer expectations in member support but stressed that Peloton has since overhauled the team. During the fiscal Q2 earnings call, he admitted that Peloton had fallen short in delivering product innovation, pledging “significant product innovation” over the next couple of years.
Peloton’s Prolonged Growth and Cash Flow Conundrum
McCarthy set two primary objectives for Peloton: to rekindle revenue growth and to steer the company from a cash-devouring entity to one capable of generating free cash flows.
In his fiscal Q2 shareholder letter, McCarthy revised Peloton’s timeline for achieving these goals, deferring the expectations of becoming free cash flow positive for the entire fiscal year 2024 to fiscal Q4. Similarly, the management now anticipates revenue growth only in fiscal Q4, a significant departure from its previous projections.
The Gloom Surrounding PTON Stock Forecast
Analysts have long frowned upon Peloton, and the company’s disheartening 2024 guidance did little to assuage Wall Street, resulting in a consensus rating of “Hold” for PTON stock. However, the mean target price of $7.55 stands nearly 67% higher than yesterday’s closing price.
Apple’s Interest in Acquiring Peloton
Intermittent reports have surfaced regarding Apple’s potential interest in purchasing Peloton. Notably, Apple has been eyeing the healthcare domain, with CEO Tim Cook underscoring in 2019 that enhancing people’s health would be “Apple’s greatest contribution to mankind.”
Last month, the rumors gained traction when Deepwater Asset Management co-founder Gene Munster endorsed the possibility, citing Cook’s healthcare focus, Apple’s subscription revenue growth strategy, and Peloton’s alignment with Apple’s overall subscription approach, boasting approximately 3 million connected fitness subscribers. Previous murmurs also linked Amazon and Nike (NKE) to a potential Peloton acquisition. Evidently, as tech giants, from Microsoft (MSFT) to Alphabet (GOOG), hone in on healthcare, the prospect of Peloton securing a suitor brims with distinct plausibility.