What happened
Shares of Peloton (PTON 4.29%) jumped by as much as 12.5% in early trading on Thursday after the company announced a major new partnership with Lululemon Athletica (LULU 1.31%). Peloton shares rose early but quickly backpedaled, and even traded lower for a short period in morning trading. As of 12:50 p.m. ET, shares were up by 6.3%.
So what
The partnership entails two different agreements in digital fitness and apparel. On the digital fitness side, Lululemon will distribute Peloton's content through its Studio Members products, and will also offer current Lululemon Studio app-only customers Peloton App One membership after Lululemon's service shuts down in November.
On the apparel side, Lululemon will become the "primary athletic apparel partner to Peloton," increasing the sales channels for Lululemon.
On the surface, the agreements may not seem like a big deal, but in both cases, they turn the competitors into partners. Peloton gets to focus on the digital fitness content that it does best, while Lululemon can focus on making apparel for both companies.
Now what
We don't know the financial impact of either the content or apparel sides of the deal, but it's fair to say that both will be incrementally positive for both companies. In the past, Peloton has priced the App One subscriptions that it offers through partnerships at $6.99 a month, so that's likely in the ballpark of what we can expect for revenue from each Lululemon member, although the apparel company did not disclose the number of members its service has.
Strategically, this deal makes a lot of sense for both companies, but it may take time to see the financial impacts. However, for Peloton shareholders, any good news is welcome given the continuing decline in its share price since its pandemic peak.
