Apple (NASDAQ: AAPL) and Peloton Interactive (PTON 3.15%) couldn't be further apart at opposite ends of the spectrum when it comes to rewarding their shareholders. The iPhone maker has seen shares soar 185% in the past four years, a time when the fitness company's stock has tanked 86%.
But despite their vastly different performances, investors can look at both of these businesses to gain insights for portfolio decisions. There is a lot that Apple's success can teach us about Peloton's struggles that might affect how you view the latter's stock.
The similarities are obvious
At a high level, it's not too difficult to figure out how Apple and Peloton are the same. Both businesses sell well-designed and easy-to-use consumer hardware.
In Apple's case, it offers the highly successful iPhone, which might turn out to be the single greatest product introduction ever. It also sells MacBooks, iPads, AirPods, and the Apple Watch, for example. These products raked in $96 billion of revenue in the latest fiscal quarter.
Peloton is known for its flagship Bike, but it also sells an upgraded Bike+, Tread, Tread+, and Row. These items aren't cheap -- they can cost thousands of dollars. During the three-month period that ended Dec. 31, the company generated $319 million from sales of these exercise products.
Besides their hardware, Apple and Peloton both develop their own proprietary software that helps differentiate that hardware.
Apple is a superior business
The difference in the success of these two companies couldn't be more drastic. Apple is consistently profitable, generates huge amounts of cash, pays dividends, repurchases shares, and has a pristine balance sheet. This financial prowess is certainly a reason its shares are owned by Warren Buffett's Berkshire Hathaway.
Meanwhile, Peloton is posting revenue declines, and it remains far from profitability, reporting a net loss of $195 million just in the latest quarter. And as of Dec. 31, it carried $1.7 billion of debt, more than its current market cap.
Apple is in an advantageous position because it sells products and services that have global appeal -- basically the entire world's population can be viewed as the company's addressable market. Peloton's expensive fitness products likely only draw interest from a small subset of people who are very committed to their health.
And Apple's products are the kinds of things people can't function in their daily lives without, while Peloton's exercise equipment and fitness app require lots of effort from customers. The latter company is constantly betting on its users to stick to their workout regimens, which might be a losing proposition.
Takeaways for Peloton shareholders
Viewed next to Apple, Peloton's issues are glaring. I think there are two key takeaways for investors when comparing these two companies. They both center on the fact that Peloton's struggles, namely falling demand and a lack of profits, might be permanent.
Even though Apple might see weak iPhone demand, it's still generating sizable earnings and cash. When Peloton was experiencing incredible demand during the pandemic, it still wasn't profitable on an annual basis; it might never reach consistent positive net income.
I'm not even sure that Peloton's products aren't still just a fad, like other fitness products in the past. There are an unlimited number of ways people can work out, calling into question the durability of what the company offers. Apple has proved that it's not going anywhere, as a key part of our daily lives, while Peloton might never get back to reporting solid growth in sales and users.
Risk-seeking investors looking to buy Peloton stock in the hope that management can orchestrate a successful turnaround should think twice. The odds of achieving strong returns aren't stacked in their favor.
