Peloton Stock Surges on TikTok Partnership and Apple Buyout Talks
Please note that we are not authorised to provide any investment advice. The content on this page is for information purposes only.
Peloton stock, which rose sharply yesterday is up in double digits today also after the company announced a new partnership with TikTok under which the company would bring short-form videos and other content to its popular social media platform.
As part of the agreement, there will be a new fitness hub on TikTok named “#TikTokFitness” on which PTOM will have a dedicated, co-branded hub with custom Peloton content.
Table of Contents
Peloton shares rise on TikTok partnership
In its release, Peloton said, “This marks the first time Peloton will produce bespoke social content for a partner outside of Peloton-owned channels. Content will include select live Peloton classes with and without equipment required, original Instructor series, ongoing creator partnerships, Peloton class clips, and celebrity collaborations, all accessible via the #TikTokFitness hashtag, curated on the Peloton hub.”
Despite several agencies flagging TikTok as a national security risk, the platform is hugely popular in the US as well as globally with total global active users of over 1 billion. Peloton stock is rising on optimism that the partnership would help the company increase its sagging revenues.
“On the one hand, there’s a longer-term goal around changing perceptions around who Peloton is for to multiple different types of audiences and I think one of the real strengths of TikTok … is that it increasingly reaches everyone, including the younger audience,” said Oli Snoddy, Peloton’s vice president of consumer marketing, in an interview with CNBC
TikTok is also bullish on the partnership
TikTok also sounds bullish on the partnership with Peloton and Sofia Hernandez, TikTok’s global head of business marketing said, “People from 16 to 60 are on the platform and when I think about [Peloton’s] campaign of ‘anyone and anywhere,’ there’s not a better place to reach that level of audience we have, that level of a diverse audience.”
PTON’s growth has sagged
Meanwhile, Peloton’s growth has sagged over the last couple of years and the revenue boost that it received from the COVID-19 lockdowns has faded. Let alone doubling its revenues annually as it did during in the fiscal year 2020 and 2021, Peloton’s revenues have instead been falling and fell YoY in the subsequent two fiscal years.
It also lost subscribers in the last two quarters and its guidance implied a revenue decline in the December quarter as well.
The stock had risen 440% in 2020 as stay-at-home stocks rallied and it was among the beneficiaries of the change in consumer behavior. Many health enthusiasts bought Peloton’s equipment during the lockdowns as gyms were closed.
PTON stock has nosedived
However, the tide started to turn for the home fitness company once the lockdowns were lifted. Let alone reporting the triple-digit revenue growth that it witnessed during the pandemic, its revenues have fallen YoY for the last two fiscal years.
In 2021, PTON stock fell 76% and was the worst-performing Nasdaq stock. While the entire stay-at-home pack saw selling pressure, PTON was especially under pressure. The stock plummeted in 2022 and 2023 as well as fell to record lows, briefly becoming a penny stock.
Peloton has been working on partnerships
Ever since Barry McCarthy took over as Peloton’s CEO, the company has been working on forging new partnerships. It announced a partnership with Amazon to sell its fitness equipment on its platform. It also partnered with Dick’s Sporting Goods and Lululemon to see its hardware through their stores.
The company also announced a multiyear partnership with the NBA and WNBA. Meanwhile, McCarthy has rued the fact that markets haven’t appreciated its moves and said during the fiscal Q4 2023 earnings call, “There’s this enormous disconnect between the stock price and the energy in the building around all of the partnerships and co-development things that are cooking.”
He also said that the company would continue to announce new partnerships – like we have seen with TikTok.
PTON’s subscription revenues have spiked
Meanwhile, even as Peloton’s hardware sales have sagged, its subscription revenues have grown at a brisk pace and now account for the bulk of its revenues. In the most recent quarter, Peloton’s subscription revenues were $415 million which is over twice the $180.6 million that the company generated from hardware sales.
There have been rumors that Apple, which has big plans for its healthcare business, might acquire Peloton. Incidentally, in 2019, Apple’s CEO Tim Cook famously said, “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.”
Gene Munster believes Apple should buy Peloton
Gene Munster of Deepwater Asset Management believes that “the stars are starting to line up” for an eventual buyout of Peloton by Apple. He listed multiple reasons including that “it makes sense for Apple’s business model.” He said that Apple currently has six subscription products which account for 4% of Apple’s revenues ($16 billion in absolute terms.)
Munster said that if Peloton can continue its current revenue growth rates, it would be around 11% of Apple’s current subscription revenues. He also pointed out that Peloton’s subscription business has stabilized. Munster also believes that Peloton would fit well into Apple’s overall healthcare business.
He also talked about the valuation gap between the two companies and said that even if Apple pays a 50% premium over PTON’s current stock price it would be only twice the company’s subscription revenues while Apple trades at seven times its revenues.
