Thursday is going to be a big day for Peloton Interactive (NASDAQ:PTON). The fast-growing darling of the home fitness boom reports financial results after the market close, and it will fall somewhere between a great quarter and a really great quarter.
The stock may take a hit if it's merely a great quarter. The shares have have more than tripled this year, and expectations are high. No matter how the market reacts, Peloton itself will be a much more important company by the end of the day than it is right now. Sooner or later someone -- perhaps someone unexpected -- is going to make a play to acquire Peloton. Let's go over a few potential suitors that may as well make their intentions known before it's too late.
The class act of Cupertino is an obvious place to start. Apple (NASDAQ:AAPL) and Peloton charge a premium for products that appear to be commoditized by everybody else. More importantly, people don't mind paying the markup to own Apple gadgetry and Peloton workout gear.
Apple and Peloton together makes sense. It's fair to say that many of the more than a million connected fitness subscribers on Peloton's platform own iPhones and other Apple products. Both companies command better margins on their hardware than the rest of their industries because of the aspirational nature of their brands, and that's just the beginning. These devices are stepping stones into the ecosystem of subscriptions and other services where the juiciest margins come to play.
Will Peloton move the needle at Apple? It's a fair question. Peloton's trailing 12 months of revenue is less than a single month of iPad sales. However, close your eyes and picture Apple Store locations everywhere setting aside some of their ample space to showcase Peloton treadmills and stationary bikes. Sales will explode at that point, and it won't seem out of place since health and fitness has become a big selling point for Apple Watch and iPhone products. Apple is hungry for a new hit. There's too much riding on the iPhone. Apple can take Peloton to the next level, and at that point it would move the needle with an eventual installed base in the millions and annual subscription revenue in the billions. Apple can compete against Peloton, but it's easier to have it on its side.
You didn't see this one coming, so bear with me. Walt Disney (NYSE:DIS) isn't at its best right now. Its theme parks and studio entertainment businesses are being rocked by the pandemic. Disney+ has been a saving grace for Disney, but the same can also be said about the steady force of its media networks. Disney realizes that reaching fans at home is the place to be in the new normal, and that makes Peloton a logical fit.
Disney owns 80% of ESPN, and a well-liked home fitness platform isn't a stretch from that pivot point. We also have to remember that Disney's theme parks won't be struggling forever. Disney theme parks worldwide attracted nearly 156 million guests last year. Can you imagine the kind of bump that Peloton sales would experience if its products were featured at the parks or even at the gyms of the on-site resort? A day at any Disney park isn't cheap, so a lot of its theme parks guests probably wouldn't flinch at a four-figure price tag for a tread or a bike.
If you didn't see Disney coming then you probably didn't expect Tesla (NASDAQ:TSLA) bringing us home. There are probably plenty of Tesla electric vehicle owners that have a Peloton at home. Both companies are as aspirational as they get these days. Peloton and Tesla can probably sell a lot of each other's products just through some basic cross-selling efforts.
Tesla is also one of the few mega caps whose shares have outpaced Peloton, an important bargaining chip in convincing Peloton to accept an all-stock buyout.
Tesla bulls will argue that a Peloton buyout would slam Tesla stock. Why dilute its investors for an acquisition that isn't entirely related to its business? Well, did the same critics wince when Tesla bailed out Elon Musk's own solar panel business a few years back? Peloton is growing, and its presence would lift Tesla's overall top-line gains. Peloton's a growth stock, with 81% in revenue growth over the past four quarters. Tesla saw a pedestrian 3% uptick in revenue over the past year. Tesla doesn't need Peloton, but just as it recently moved to sell stock with its shares setting all-time highs, it can also use its inflated stock to go shopping for all-stock deals to make.