Just because Peloton is wounded and Apple has gobs of cash, knowledge and momentum behind its fitness offerings, with the Apple Watch and new fitness classes, does it mean the tech giant will make an acquisition play for the connected bike maker?
"That has been a question I have been asked for the last three or four months," said Cowen tech analyst Krish Sankar , referring to the rumblings of Apple gobbling up Peloton on weakness. "If you look at their M&A, Apple has done a ton of M&A in the last seven years but most have been small acquisitions, the largest being Beats at $3 billion. If you ask me the way things are today, it seems like the blueprint for M&A [at Apple] is still what worked in the past. That doesn't mean they won't go out and do big M&A, but I would say the chances of it happening are pretty low."
The deal chatter is reasonable to see churned up on the Street as Peloton has been through the ringer over the past 12 months, which has sent its stock price crashing.
In a scathing letter earlier this month, activist investor Blackwells Capital — which a source tells Yahoo Finance has amassed a less than 5% stake in the company — demanded Chairman, founder and CEO John Foley be immediately fired.
"Mr. Foley must be held accountable for his repeated failures to effectively lead Peloton," Blackwells Chief Investment Officer Jason Aintabi wrote in the letter. Aintabi lists a host of grievances with Foley, ranging from putting his wife in a key operational role at the company (apparel leader) to mishandling a safety recall for a treadmill.
Peloton declined to comment to Yahoo Finance about the letter.
Blackwells contends Peloton should put itself up for sale, highlighting the aforementioned Apple, Nike, Sony and Disney as potential suitors.
Shares of Peloton have cratered 30% in January, pressured further by a CNBC report that the struggling fitness company would temporarily halt production of its bikes and treadmills due to sluggish consumer demand. The company will reportedly stop producing its bikes for two months and treadmills for six weeks.
Peloton refuted the report, saying it hasn't halted all production. It also pre-announced quarterly results, which showed a miss on the number of subscribers added.
Shares are down 83% in the last year.
"I think the challenge for the [Peloton] management team is that they need to really pivot from being a hyper growth company to now where they are, not in that part of the S Curve," said Needham analyst Bernie McTernan on Yahoo Finance Live.
Enter Apple into the discussion.
Late in 2020, Apple launched Apple Fitness+ which offers studio-style workouts that focus on popular training methods such as cycling, treadmill running, rowing, high intensity internal, yoga, dance, and core.
Apple CEO Tim Cook highlighted several new features on the platform on the company's quarterly earnings call on Thursday.
"Fitness Plus, meanwhile continues to inspire customers to reach their health and fitness goals. We recently introduced time to run an extension of our popular series time to walk as well as new collections of workouts and meditations to help users make more intentional training choices," Cook said.
By purchasing Peloton, Apple would add millions of monthly subscribers that put health top of mind — generally a lucrative customer demographic. Meanwhile, Apple's operational know-how and deep supply chain relationships would likely bring instant operational — and financial — relief to Peloton.
But Sankar says Apple may have other uses of cash besides splurging on Peloton to help boost subscription and Apple Watch sales, including stock buybacks and dividends.
"The other thing I would say is Apple's net cash has been $60 billion. They have spoken about getting it to neutral," Sankar adds.
In the end, going cash neutral may not include writing a big check for Peloton.
Brian Sozzi is an editor-at-large and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.
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