The Peloton Bidding War Is ON

Feb 12, 2022

Peloton (PTON) stock soared this week on reports of potential acquirers circling the company, including Amazon, Apple, Nike, Alphabet, and even Disney.

Here are three reasons we believe Peloton makes a very attractive buyout target and could spark a bidding war:

1. Macro trends have put the stock on sale.

During the pandemic, we saw a massive shift in consumer behavior around exercise.

Gyms were shut down or avoided, and “working out at home” became one of the fastest-growing trends in our universe.

Peloton (PTON) was at the perfect place at the perfect time and capitalized on this incredible demand surge in a big way.

But now, the tide has shifted.

Americans are “moving on” from COVID-19 — and returning to some of their normal pre-pandemic activities.

Working out at home has taken a back seat to getting out there and joining a gym or attending a group fitness class in person.

In other words, things are normalizing.

A savvy acquirer knows that, just like the pandemic-fueled move TO Peloton, this move AWAY from Peloton-beneficial macro trends is likely overdone.

Wall Street has panicked and put PTON stock on sale.

2. Consumers LOVE Peloton.

Peloton has one of the highest consumer happiness levels of any company in our coverage universe.

This holds up nicely against competitors — both home workout companies and chain gyms:

Despite the jokes about Pelotons being “a stationary bike with a mounted iPad,” Peloton users love their equipment and the content.

This engaged audience means Peloton’s subscribers are unlikely to cancel their monthly service, as evidenced by the company’s historical monthly churn rate under 1%.

Acquirers love subscription revenue models with low churn — and Peloton’s consumer happiness levels make it an attractive target.

3. The COMPANY is performing well.

Wall Street got it wrong during the pandemic and priced PTON as if the company would grow at that pace forever.

Forget the stock for a moment… It’s suffering from unrealistic investor expectations.

An acquirer will care about how the company itself is doing.

LikeFolio consumer insights data suggests that consumer demand is strong.

If you remove the insanity of the pandemic, you can see that Peloton shows consumer demand levels that have increased by 33% versus the same time period two years ago.

That’s right — despite an enormous level of pull-forward demand in 2020 and 2021, Peloton still has more overall demand for its products now than it did before the pandemic began.

On top of that, the company showed an impressive ability to scale to meet booming demand — and added a huge base of monthly subscribers to its subscription-based revenue model.

Not bad, not bad at all.

Bottom Line?

While the macro winds have shifted against Peloton for the moment, Wall Street’s panic is just as overdone as its euphoria a month ago.

Peloton’s ability to create and maintain a large base of very happy subscribers will continue to make Peloton an attractive acquisition target for many suitors in the near future.

In the meantime, acquisition rumors and speculation will put a floor under the stock, making this a must-watch company for investors in 2022.

Andy Swan
Founder, LikeFolio