Peloton Interactive (PTON 6.61%) has been making headlines in recent months as its struggling business is giving rise to conversations about a potential takeover. Some of the companies being suggested as possible suitors for Peloton include Nike, Apple, Amazon, and Sony. Another that has people talking is Walt Disney (DIS 1.38%). Such a deal could bring together two brands with loyal customer bases.
Let's take a look at the potential benefits of a Disney acquisition and assess the likelihood of such a bold move actually happening.
A Disney buyout of Peloton would bring marketing synergies
Demand for Peloton's products surged at the pandemic onset as millions of people were forced to look for alternative exercise options when fitness centers temporarily closed. As the economy reopened, Peloton management overestimated the duration of customer interest and overinvested in capacity expansion.
The elevated costs from those investments weighed heavily on the interactive exercise-equipment maker's financials, as customer demand has slowed considerably. Peloton CEO John Foley stepped down on Tuesday and the company announced cost cuts, including eliminating 2,800 jobs and abandoning a factory that was under construction. The overinvestment and other management missteps attracted activist investor Blackwells Capital to push Peloton to sell itself. But who would buy this troubled company?
Disney, as noted above, was one name mentioned. But would an acquisition make sense? On the one hand, Disney could market Peloton to its large base of avid sports fans throughout its ESPN media properties. Indeed, one estimate suggests that ESPN.com was visited an average of 583 million times between October and December. What's more, 87% of those visits are from the U.S., a country with a high per-capita income.
To put that figure into context, Peloton has claimed it will end 2022 with 3 million connected-fitness subscribers. It wouldn't take a large percentage of ESPN.com visits converting into Peloton purchasers to improve results meaningfully.
Moreover, the ESPN television channel also commands a large audience. For instance, ESPN's Sportscenter, which offers breaking news, highlights, and in-depth analysis, attracts 115 million viewers per month, on average. Sportscenter is a lucrative program for marketers, and Disney could strategically place Peloton advertisements to attract customers.
Peloton reported fiscal 2022 second-quarter results on Feb. 8, and one of its most oversized expense items was sales and marketing. In the three months ended Dec. 31, Peloton spent $349.6 million on sales and marketing. Meanwhile, it sold $796.4 million of connected-fitness products. Under the Walt Disney umbrella, Peloton's customer-acquisition costs could decrease significantly and achieve a better return on ad spend.
How likely is a Peloton takeover by Disney?
The short answer is not very. Peloton insiders have combined voting control of roughly 80% of the company. A sale will likely need their stamp of approval, something they may be hesitant to give at the depressed valuation. At its height, Peloton was valued at roughly $50 billion. As the market closed on Tuesday, it traded at an enterprise value of $12 billion.
Further, Disney isn't exactly in a position to go out looking for acquisitions. The company is still reeling from the effects of the coronavirus pandemic, which led it to close its theme parks temporarily. Disney has yet to reinstate the semi-annual dividend it paused at the pandemic onset to conserve cash. And it's already spending money to expand its streaming services.
While an acquisition of Peloton by Disney makes for interesting speculation, the likelihood of it happening is not very high.