With a lineup of highly popular hardware products and up-and-coming services and software offerings, apple (NASDAQ:AAPL) has become one of the most valuable businesses on the planet. The company's expertise and overwhelming success in the consumer-centric technology industry could be an asset in a potential acquisition.
consider peloton interactive (NASDAQ:PTON). The once-thriving exercise equipment and app company experienced declining demand and continued net losses. Perhaps some support could accelerate the rebuilding plan.
Is it possible that the iPhone maker, which boasts enormous financial resources, would buy an ailing fitness company? There are two important things investors should know about the ongoing rumors surrounding this deal.
Apple is a worthy buyer
Apple specializes in creating beautiful hardware that is differentiated by proprietary software, and that's exactly what Peloton does. The difference is that Apple maintains sustained success in a profitable manner thanks to its focus on innovative culture, brand strength, and pricing power. This is exactly what Peloton wants to be.
Apple already has a presence in the health space with the Watch and Fitness+. CEO Tim Cook said in 2019 that Apple's greatest contribution to humanity “will be in health.” The overarching goal of improving people's lives is something Peloton shares with Apple.
The deal could make strategic sense. Apple already has over 2 billion active devices. Bringing exercise equipment to high-income households would provide new ways to collect data, and the two companies could find clever ways to integrate.
For example, Apple Music can offer all the music from Peloton's vast workout catalog. And through Apple Card, Apple is able to offer certain perks and incentives for purchasing Peloton hardware.
Apple also has the financial power to buy Peloton for cash. In fiscal year 2023, this technology company will be worth $100 billion. free cash flow. There's more than enough cash in the safe.
Peloton hardly moves the needle
Now that we've looked at all the compelling reasons why Apple is a sure-fire buyer for Peloton, let's take a look at why this deal won't happen soon.
First, Apple isn't known for its corporate strategy of favoring large-scale acquisitions. The company's biggest acquisition was Beats in 2014 for $3 billion. At a significant premium to Peloton's current market capitalization of $2.1 billion, it would still be an acquisition option for Apple as one of its largest companies. I don't know if management intends that.
Apple had revenue of $383 billion in fiscal year 2023 (ending September 30). In fiscal year 2023 (ending June 30), Peloton posted sales of $2.8 billion. Even if enforcement company revenues soar under Apple, the opportunity may still be too small.
On the other hand, if the deal actually happens but doesn't turn out well, the purchase price would be a rounding error for Apple, and shareholders would likely ignore it. At least management would have tried something that made strategic sense, but that wasn't an option.
But let's say this deal comes to fruition, Peloton is successfully integrated into Apple's business, and the fitness business returns to growth and profitability. Still, that didn't move the tech giant's needle.
Apple basically sees the entire world's population as its addressable market. This is just a small percentage of people who are interested in spending a four-figure amount on the purchase of exercise equipment. Nevertheless, if this deal were to be considered, Peloton would undoubtedly benefit much more than Apple.
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Neil Patel has no position in any stocks mentioned. The Motley Fool has a position in and recommends Apple and Peloton Interactive. The Motley Fool has a disclosure policy.
Could Apple acquire Peloton in 2024? “Two Things Investors Should Know About Rumors'' was originally published by The Motley Fool.
