What happened
Shares of Peloton Interactive (PTON 4.29%) were climbing today after the connected-fitness champion said it would acquire exercise equipment maker Precor for $420 million in an all-cash deal.
Wall Street cheered the move and Peloton shares were up 13.5% as of 11:25 a.m. EST, hitting an all-time high earlier in the morning.
Image source: Peloton Interactive.
So what
The acquisition accomplishes a number of things for Peloton. First, it expands the company's manufacturing capacity at a time when pandemic-fueled demand has outstripped supply. Sales of Peloton's bikes and treadmills have soared during the global health crisis as gym rats have few other options with conventional fitness centers and boutiques closed or under tight restrictions. With the purchase, Peloton gains 625,000 square feet of manufacturing capacity in the U.S. and the machinery to go with it.
Additionally, Precor focuses on the commercial fitness channel, selling to hotels, apartment buildings, and college campuses, and those relationships should help Peloton further penetrate those channels as Peloton has historically been focused on individual consumers.
Finally, the move will enhance Peloton's research and development (R&D) capabilities as it will bring nearly 100 R&D professionals onto Peloton's research team, helping it design the next generation of connected fitness equipment and experiences.
Now what
Analysts cheered the move this morning with several raising their price targets on the stock, which helped propel Peloton to double digit gains today.
The stock has been one of the biggest winners from the "stay-at-home" economy as shares have jumped nearly 500% this year, and revenue has skyrocketed as well, jumping by 232% in its most recent quarter.
Peloton is sure to experience a hangover once the pandemic is over and people feel safe to return to their previous workout routines, but its subscription model should help the growth stock retain much of the recent spike in its user base.
The acquisition of Precor signals management's confidence in its ability to keep growing briskly even after the crisis is over.
