Daniel Ives: Exit of Peloton CEO John Foley sets stage for acquisition

"We view Apple as the likely acquirer due to the clear strategic fit,... while Amazon and Nike among others could be potential bidders in the mix."

From a note to Wedbush clients that landed on my desktop Tuesday:

According to the WSJ in a surprising move this morning Peloton Founder and CEO John Foley will step down from the company after a disaster few months.

Foley has been the pioneer and visionary of Peloton over the last decade with a meteoric rise of Peloton and now exits in a dark time with 2,800 job cuts (20% of its corporate base) and the wind down of its Peloton Output Park in Ohio. We believe Foley leaving the CEO post and moving to executive chair (being replaced by former Spotify and Netflix CFO) sets up a fork in the road path for Peloton in the months ahead.

While Foley has supermajority B shares and ultimately controls the fate of Peloton, we believe shareholder pressure will build to solicit bids and sell Peloton to a strategic player with potential bidders Apple, Amazon, and Nike likely in the fold. (emphasis his)

While Peloton will likely spin a path of restructuring and growth ahead with the new CEO and "rip the band-aid off earnings/guidance" after the bell, the reality is that Foley was the pilot on the Peloton growth plane and him leaving paints a bleak picture with the main visionary no longer in charge...

In a nutshell, we believe Foley leaving makes it more likely that Peloton ultimately sells the company and the Board clearly has major decisions to make in the days/weeks/months ahead. If a bidding process begins, we view Apple as the likely acquirer due to the clear strategic fit with its healthcare/fitness/subscription initiatives while Amazon and Nike among others could be potential bidders in the mix.

Maintains Outperform rating and $200 Apple price target.

My take: It's not in Apple's DNA to make double-digit billion dollar acquisitions -- at least, not the Apple I know. See history.

10 Comments

  1. Mark Visnic said:
    My take: It’s not in Apple’s DNA to make double-digit billion dollar acquisitions — at least, not the Apple I know. See history.

    I disagree with Dan and agree with you, strongly.

    Peloton is in a Napoleonic crash and burn spiral and isn’t worth its present price in my view.

    6
    February 8, 2022
  2. Jerry Doyle said:
    Investors who understand deeply Apple and all things Apple know explicitly that Tim Cook will not acquire Peloton. It surprises me immensely to see Daniel Ives doesn’t get it. Apple doesn’t need Peloton and the cost acquisition would far outweigh disproportionately any tangible benefit Peloton could bring to Apple since most all Peloton subscribers already are in the Apple ecosystem. I will go as far as to say if the Peloton board offered to give the company to Apple that Tim would want no part of Peloton. What are these supposedly intelligent WS analysts thinking??? Do they still not get Apple this badly?

    7
    February 8, 2022
  3. Romeo A Esparrago Jr said:
    If they interview for open Apple positions, just hire the people resources if they’re awesome & fit Apple’s strategic roadmap (out 20 to 100 years?) & culture. Buy the patents only if they go on discount sale (only if on roadmap). Nothing else seems worth acquiring for Apple.

    That Intel smart modem unit acquisition for $1B was a good deal.

    5
    February 8, 2022
  4. Romeo A Esparrago Jr said:
    Buying ARM or resolving that weekly Dutch fine in Apple’s favor seems like more valuable efforts than spending it on this company.

    4
    February 8, 2022
  5. Steven Philips said:
    Yes, they’re misjudging a “strategic fit” with Apple. But I think what they’re really misjudging is Peloton. IMHO it was doomed from the start. It was a fad that was/is in no way sustainable. Personally I think this applies to almost all subscription services. ISPs and cable included. At some point most subscribers are paying for a little or a lot of something they’re not using. (Especially if you don’t have a family!) Even Apple’s bundles. (Let me pick and choose!)
    Would people want to “subscribe” to a gas station? To electric service? To groceries? Subscriptions might be more profitable but they’re bad for consumers. (Where’s Kahn’s outrage?)

    1
    February 8, 2022
    • John Konopka said:
      Agreed. I get it that people using exercise machines could fit into Apple’s Fitness+. But what does Peloton own that makes them valuable? That hasn’t been explained to me. They managed to get a few million subscribers. Really a tiny subset of Americans, not even of the world.

      Apple makes something like 60% of their revenue outside the US. Adding Peloton to Apple would not move the needle of revenue in any visible way, and it would be a distraction for management.

      Instead of Peloton, Apple should invest more into Fitness+ by adding more languages and adapting to more cultures around the world. Currently Fitness+ is available in 15 countries and is only in English with subtitles in six other languages.

      For an aging population, Apple could develop Fitness+ workouts for older people around the world. Daily stretches and low impact workouts for all ages could be popular. Maybe put in a little PT for acing knees, shoulders and backs. Just getting people up and moving 30 minutes a day could be better for the population than a small number of people doing punishing “soul cycle” workouts on their Peloton bikes.

      I don’t know what the cultural differences for exercise are in different countries, but having lived in Asia for quite a while I’m sure they exist. Instead of adding a couple million American subscribers they could add a couple hundred million worldwide subscribers.

      5
      February 8, 2022
    • Bart Yee said:
      @Steven said: “Would people want to “subscribe” to a gas station? To electric service? To groceries? Subscriptions might be more profitable but they’re bad for consumers. (Where’s Kahn’s outrage?)”

      Uh, Costco, Sam’s Club for discounted gas and (maybe discounted but better quality) groceries seems to work pretty well. If I could get a flat rate electric service with defined thresholds, I think that would prove useful for many. And Amazon doesn’t seem to be losing money with Amazon Prime.

      Consumers have choices and decisions about whether subscriptions are “bad” for them. Same was when I subscribed to Road & Track, Autoweek, and Sports Car Graphic.

      0
      February 8, 2022
  6. Michael Goldfeder said:
    I’d rather see Apple buy Pets.com. That sock puppet was great!

    2
    February 8, 2022
  7. David Drinkwater said:
    I think Apple could probably get what it needs from Peloton by setting up Health/Activity to work well with Peloton. That might require 3-5 Full Time Employees? (I do not own a Peloton product, so I don’t know any status of Peloton Apps or integration with Fitness+.)

    I’ve got a BP monitor for a company I won’t name that has an endless e-mail stream of its technical functionality on iOS. Here again, 3-5 FTEs could work as ambassadors to help make it work better.

    But would Apple be overpaying for its 30%?

    0
    February 8, 2022
  8. Roger Schutte said:
    If Apple buys Peloton, I will sell all of my AAPL stock as the company I own has changed. And not for the better.

    0
    February 8, 2022

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