One of this week's hottest stocks is Peloton Interactive (PTON -0.16%). Shares of the premium home fitness specialist soared 21% on Monday and 25% on Tuesday. Monday's pop came after reports that Amazon.com (AMZN -1.93%) was one of the potential bidders considering making a buyout offer for the then spiraling Peloton.
Tuesday's surge followed news of founder CEO John Foley stepping down as a larger part of a round of layoffs. The move suggests that Peloton is hoping that fresh leadership can get it back on track, but it's also going to make it that much easier for a hungry acquirer to scoop up the company if the price settles back down.
All of the speculation is on how Peloton would be a good fit for Amazon, Apple (AAPL 0.43%), or Nike (NKE -0.69%). They all make sense, but let's take a look at some dark horses. Why can't Disney (DIS -1.23%), Tesla Motors (TSLA 3.52%), or Target (TGT -0.44%) step into the bidding circle here? One or more of those names probably has you scratching your head, so let's take a close look.
Image source: Peloton.
Disney
Mickey Mouse on a Peloton may not make a lot sense on the surface, but let's count the ways that Disney can benefit from having the keys to the high-end fitness specialist. Let's start by pointing out that Disney is the majority stakeholder in ESPN, the world's largest sports network. Disney also happens to own the ESPN Wide World of Sports complex in Central Florida. Run Disney events where marathoners test their endurance through Disney World are already popular, so we know that there's a wide intersection where Disney fans and fitness buffs meet in the middle.
Disney also operates theme parks that draw a lot of people with the money to spend on a Disney vacation. The industry leader attracted more than 155 million people across all of its Disney-branded theme parks in 2019. Imagine hitting those visitors up with in-park presentations, a presence in resort hotel fitness centers, and promotional missives going out to its deep list of enthusiasts.
It doesn't have to stop there, of course. Peloton has a deep bench of Peloton instructors. Now imagine if Disney can dive into its unmatched catalog of intellectual properties to create workouts themed to Marvel, Pixar, or Lucasfilm franchises. How about we cycle through EPCOT on our stationary bikes or hop on a treadmill to follow the path of a Disney marathon?
Disney was able to grab 118 million paying subscribers to Disney+ in less than two years. It can definitely grow Peloton's base from 2.77 million connected fitness accounts.
Tesla Motors
There's probably a fair amount of overlap between Tesla and Peloton owners. They're both premium-priced experiences that skew to the monied youth. They're eco-friendly and luxury experiences. Tesla also happens to be one of the few megacap stocks that wouldn't necessarily take a hit after announcing a Peloton deal.
Hear me out. Tesla is the country's fifth-most valuable company by market cap at $953 billion. Even buying Peloton at double today's market cap of $12 billion -- and it shouldn't take anywhere close to that -- would be less than 3% of Tesla's market cap. Even at a 100% premium, that would be Tesla at an enterprise value of 17 times trailing revenue buying a company at just 6 times the same multiple. It would be accretive on that front.
The deal makes sense. Tesla already sells solar power solutions at its Tesla showrooms, so it's not as if pitching Peloton bikes will seem out of place. Is there a CEO with more followers on the socials than Elon Musk? Imagine Musk reaching out to his 73 million followers about the merits of Peloton.
Tesla cars are premium priced, but they also have a strong subscription component. You can pay $10 a month for premium connectivity or $199 a month for full self-driving functionality. Peloton's strong connected fitness subscriber model would slide right in the well-greased Tesla flywheel. They are luxury brand stocks that would look good together.
Target
This is a longshot. Target's enterprise value of $111 billion is a little more than a third of Disney's and an eighth of Tesla's. A Peloton purchase even at a small premium would be a heavy burden on the mass market retailer. Why would Target want a high-end and profitless home fitness brand? Wouldn't it create a conflict of interest with other fitness gear it sells? Target is "cheap chic" but Peloton isn't cheap, and lately it's not even chic.
With all that out of your system, let's get into how Peloton is ready to --
No. You're not done objecting. Target is a value stock with a decent growth bent. It has a trailing earnings multiple in the mid-teens, and a respectable 1.7% dividend yield. Buying Peloton would torpedo Target's valuation and potentially even its payout.
Well, as I was trying to say, Peloton has served the high-end market well, but it's already starting to reach out to the middle class with lower-priced treads and bikes. It's at the point where Tesla realized it needed to put out the Model 3 and then Model Y to reach a mainstream audience. Target is perfect for that stage in Peloton's growth. There's plenty of room in its big-box stores to display some Peloton gear, and it has the local presence in most markets that Peloton lacks.
Target knows the importance of fitness. Seven years ago it offered all of its employees a complimentary Fitbit wearable fitness activity tracker, realizing that health and wellness improves employee availability and lowers insurance costs. I'm not suggesting that Target would offer free Peloton stationary bikes to its employees, but it can offer them at a discount to encourage workforce wellness. However, the real appeal here is how big-ticket items with monthly subscriptions would drum up per-store sales with recurring high-margin subscription revenue. Target is one of the few mass market retailers to also be a tastemaker. If Target buys Peloton, a lot of Target shoppers will finance the purchases on their Target RedCards.
