Peloton Doesn’t Need to Sell

Friday, The Wall Street Journal ran a report that Peloton, the COVID darling work from home company, was exploring a sale.

Peloton Interactive Inc. PTON 1.44% is drawing interest from potential suitors including Amazon.com Inc., AMZN 13.54% according to people familiar with the matter, as the stationary-bike maker’s stock slumps and an activist urges it to explore a sale.

Amazon has been speaking to advisers about a potential deal, some of the people said. There’s no guarantee the e-commerce giant will follow through with an offer or that Peloton, which is working with its own advisers, would be receptive.

Other potential suitors are circling, these people said, but no deal is imminent and there may not be one at all.

Amazon acquiring Peloton does make some sense, but put me firmly in the camp that says Peloton shouldn’t sell.

(As an aside, there was a lot of buzz about Apple getting in to the mix, and I agree with John Gruber in thinking that would be extremely unlikely. Yes, the Peloton hardware and productions are Apple-level quality, but can you imagine Apple selling Android-powered exercise bikes?)

Should there be a transaction, it could be significant, given Peloton’s market value of around $8 billion—down sharply from its high around a year ago of some $50 billion.

While Peloton was once a pandemic darling as homebound customers ordered its pricey exercise equipment that pairs with virtual classes, its stock closed Friday at $24.60, below its September 2019 IPO price of $29, following a slowdown in its once-torrid growth.

Will at home workout equipment ever again hit the highs of COVID: Year One? No, probably not, and Peloton will need to adjust to that, but what is wrong with a value of $8 billion? Here is a few reasons I’m optimistic on Peloton:

1. It’s a high quality product. — Do you know anyone who has a Peloton that doesn’t love it? I haven’t met any. The safety issue with the treads was a problem for them, but their core bike product and production have had no such issues.
2. They have a leg up on their competition. — Right now the market is flooded with fitness competition, but all of them will be impacted by people going back to the local gym. In addition, a lot of the Peloton competition are side businesses (Apple+ Fitness, SoulCycle At-Home, Mirror, etc) that have a larger chance of being scaled back if people really do miss going to the gym.
3. Do people really miss going to the gym? — It’s not surprising that some people do, and that some people are trying it as we’re both on COVID overload and we’re still in “New Years Resolution” time. Will gyms be as crowded in June?

It’s clear that Peloton needs to improve their operations, specifically forecasting, build process, and inventory management. Basically, they need to find their own Tim Cook. As WSJ points out, another way to optimize operations would be to join with Amazon, but I don’t think it would help them to stay at the top of the pack in terms of quality and that’s essential to their success.