Thanks to its lineup of incredibly popular hardware products, and its budding services and software offerings, Apple (AAPL +0.32%) has become one of the most valuable businesses on the face of the planet. Its expertise and dominant success in the consumer-focused tech world could be beneficial when it comes to potential acquisitions.
Consider Peloton Interactive (PTON -0.21%). This once-thriving exercise equipment and app enterprise has experienced falling demand and ongoing net losses. Maybe its turnaround plans could get a boost with some help.
With its massive financial resources, is there a possibility the iPhone maker will go out and buy the struggling fitness company? Here are two important things that investors should know about the ongoing rumors of this deal.
NASDAQ: AAPL
Key Data Points
Apple is a worthy buyer
Apple specializes in developing beautiful hardware differentiated by its own proprietary software, which is exactly what Peloton does. The difference is that Apple has maintained lasting success in a profitable manner, thanks to an emphasis on its innovative culture, brand strength, and pricing power. Peloton wants to be just like this.
With the Watch and Fitness+, Apple already has a presence in the health space. CEO Tim Cook said in 2019 that Apple's greatest contribution to humanity "will be about health." The overarching goal to improve people's lives is something Peloton shares with Apple.
This deal might make sense strategically. Apple already has over 2 billion active devices. Adding exercise equipment into high-income households would provide another avenue to collect data, and there are neat ways the two companies could find ways to integrate.
For example, Apple Music could provide all the music for Peloton's massive workout catalog. And through Apple Card, Apple could provide certain rewards or incentives to buy a piece of Peloton's hardware.
Apple also has the financial resources to buy Peloton with cash. In fiscal 2023, the tech enterprise produced $100 billion of free cash flow. There is more than enough cash in its coffers.
NASDAQ: PTON
Key Data Points
Peloton would barely move the needle
Now that we've looked at all the compelling reasons that demonstrate why Apple would be a no-brainer buyer for Peloton, let's consider why I don't see this deal happening anytime soon.
For starters, Apple isn't known for a corporate strategy that favors sizable acquisitions. Its largest purchase occurred in 2014 when it bought Beats for $3 billion. At a meaningful premium to Peloton's current market cap of $2.1 billion, a possible takeover would still be in the ballpark as one of Apple's biggest. I don't know if management is trying to do this.
Apple generated $383 billion of revenue in fiscal 2023 (ended Sept. 30). In its fiscal 2023 (ended June 30), Peloton registered sales of $2.8 billion. Even if the exercise company saw its revenue surge under Apple, it still might simply be too small an opportunity.
On the one hand, if this deal did happen, but ended up not working out, the purchase price would be a rounding error for Apple, and shareholders would likely shrug it off. At least executives would have tried something that made strategic sense, but just wasn't in the cards.
But let's say this transaction became a reality, and Peloton was successfully integrated into Apple's operations, with a return to growth and profitability for the fitness business. It still wouldn't move the needle for the tech giant.
Apple basically has the entire global population as its addressable market. Those who are interested in spending a four-figure sum to buy exercise equipment are a tiny fraction of this. Nonetheless, should this deal ever be on the table, it would undoubtedly benefit Peloton much more than Apple.
