Should Apple Buy Peloton?

I have long believed that Apple should acquire Peloton. Peloton is the Apple of integrated fitness, Apple is becoming the consumer Healthcare company, and Apple knows how to make top-of-the-line hardware. With Peloton's new CEO, Peter Stern, being the co-founder and architect of Apple Fitness +, who knows if something is brewing?

Those who have read my posts know that I love some good M&A analysis, especially when the data at the acquired company is an advantage for the acquirer. So, let's dive into why I think Apple should acquire from both a financial standpoint and how Peloton's data holds the key to unlocking growth for Apple Fitness!

Peloton is on the Struggle Bus

Peloton became a Wall St darling during the pandemic. Honestly, it’s probably because Wall Streeters were buying pelotons for the first time and loved the experience. The app design was great, the bike was premium, and they offered the best fitness content on the market. The stock skyrocketed from $25 a share pre-pandemic to $162 at its peak. Times were good for the company, they selling out of product, doubling revenue month over month on a base of $200M in revenue and retail investors were adding it to their portfolio as the destroyer of gyms. However, investors should have listened to Warren Buffet when he said:

Be fearful when others are greedy and greedy only when others are fearful.

As the pandemic eased, the narrative of the pandemic pulling future demand forward became true. As Pelotons in customers' homes shifted from the highlight of their isolated and quarantined day to a glorified drying rack, the stock and company began to plummet. The stock now sits at ~$8/share. That being said, the value of Peloton is still there. They have built a product that is high quality and that consumers love, with incredible content. Their content business made up 67% of their revenue at just over $400M in Q4 FY24. Their subscriptions are what is keeping them afloat. They are more of a content and data company than a hardware company, and the world is starting to see that. I think of Peloton like any other content or media business, such as Disney and Netflix. The only difference is that their content is consumed via working out.

Apple Needs Some New Life

Recently, Apple has been underwhelming. Their revenue is not yet back to 2022 levels at $390B, they have been slow to roll out Apple Intelligence, and the Vision Pro was a total flop. Their Services division has been picking up the slack with iPhone sales slowing. What has been getting a lot of notice and recognition is their health products and innovation. Whether it be the vitals app telling people they are sick before they feel it or their new hearing aids feature for Airpods, Apple is delighting customers in their health experience. As someone with an Apple Watch, I can say that their health features are among the best they have built in the last few versions of iOS. My take is to lean into this world and help Peloton bridge the gap between wearables and fitness machines.

Apple: The Consumer Healthcare Company

I believe, if you zoom out into the future, and you look back, and you ask the question, ‘What was Apple’s greatest contribution to mankind?’ it will be about health.

Tim Cook said this during an interview with CNBC in 2019. What a statement to make coming from the company that created the iPhone.

So, where is Apple Fitness today? This is a tricky question to answer because Apple hides its success within Apple Services, a $25B piece of Apple's revenue (this chart is from March 2024). As the image depicts, Apple Services is no joke, combining to make more than Peloton, NYT, EA, Spotify and Netflix COMBINED!

Business of Apps estimates that Apple Fitness + has 100M subscribers and rakes in around $600M in revenue annually. They also estimate that Apple Fitness is the most used smartphone fitness app due to its dominant position with Apple Watch. So why does it make sense for Apple to purchase Peloton?

Content

Peloton has the best fitness content, and as Apple moves more into the fitness and content world, that is very valuable. Apple wants to eat more of your day. They want you to wake up and get your day started on your iPhone. They want you to workout on Fitness+. They want you to get to work using CarPlay. They want you to spend all day on your Macbook. They then want you to pay for dinner using your Apple wallet, scroll on News+, play games on Arcade, and end your night on TV+ while sleeping with your Apple Watch on. Bringing more engaging content only strengthens this flywheel.

Data

Peloton has a ton of customer data. What workouts users like, the content they watch, which exercises and movements have the best completion rate, demographic profiles, and more. More importantly, this is for paid content. Apple Fitness has a lot of data, but it's from a free product. That noise makes it hard to know what people will pay for. Merging Peloton into those datasets will give Apple a lot of insight into what direction they need to bring users to increase the number of paid.

Community

The podcast Acquired talked about on their episode with Meta how social media went from Town Square to the living room with the advent of TikTok and Reels—more private, intimate and smaller sharing groups. Peloton has created this with fitness, and Apple can further bridge this moat of community engagement. By acquiring Peloton, Apple could leverage this intimate community aspect, integrating it with their existing ecosystem to create a more personalized and engaging fitness experience. This could lead to higher user retention and more users bought into the Apple flywheel.

Do I think Apple will do this deal? Probably not! However, there are a ton of opportunities here that Apple could capitalize on, so it would certainly cement their dominance in the Fitness world. Who knows what Tim and Peter Stern will cook up in 2025?

Once again, huge thanks to App Economy Insights for the fantastic graphics and insights! Give them a follow on Substack!