Could Apple Acquire Peloton in 2024? 2 things investors need to know about the rumors

Thanks to our incredibly popular lineup of hardware products and new services and software products. apologize (AAPL -0.54%) It has become one of the most valuable companies on the planet. Its expertise and overwhelming success in the consumer-focused technology world could give it an advantage in a potential acquisition.

consider Peloton Interactive (NASDAQ: PTON). The once-thriving exercise equipment and app company has experienced declining demand and ongoing net losses. Maybe your turnaround plan can be strengthened with a little help.

Is it likely that the iPhone maker, with its vast financial resources, would acquire a struggling fitness company? Here are two important things investors need to know about the ongoing rumors of this deal:

Apple is a worthy buyer

Apple specializes in developing beautiful hardware that sets itself apart with its proprietary software, and that’s exactly what Peloton does. The difference is that Apple has maintained continued success in a profitable manner thanks to its innovative culture, brand strength, and emphasis on pricing power. Peloton wants to be just like that.

With Watch and Fitness+, Apple has already established itself in the health space. CEO Tim Cook said in 2019 that Apple’s greatest contribution to humanity “is related to health.” The overarching goal of improving people’s lives is something Peloton shares with Apple.

This deal could make strategic sense. Apple already has over 2 billion active devices. Adding exercise equipment to high-income households would provide another way to collect data, and there’s a neat way the two companies could find ways to integrate.

For example, Apple Music can provide all the music you need for Peloton’s massive workout catalog. And Apple Card allows Apple to offer specific rewards or incentives for Peloton hardware purchases.

Apple also has the financial resources to purchase Peloton with cash. In fiscal year 2023, the technology company generated $100 billion in revenue. free cash flow. There is plenty of cash in the safe.

Peloton will hardly move the needle.

Now that we’ve looked at all the compelling reasons why Apple would be an obvious buyer for Peloton, let’s consider why this deal won’t happen anytime soon.

First of all, Apple isn’t known for its corporate strategy of favoring large acquisitions. Its biggest acquisition came in 2014 when it bought Beats for $3 billion. At a meaningful premium to Peloton’s current market cap of $2.1 billion, the potential acquisition would still remain one of Apple’s biggest acquisitions. I don’t know if management wants to do this.

Apple generated $383 billion in revenue in fiscal 2023 (which ended September 30). In fiscal year 2023 (ending June 30), Peloton had sales of $2.8 billion. Even if athletic companies see a surge in sales under Apple, the opportunity may still be too small.

On the one hand, if this deal were to happen but ultimately didn’t happen, the purchase price would be a rounding error for Apple and shareholders would likely ignore it. At least management was trying to do something that made strategic sense and probably wasn’t in the plan.

But let’s assume this deal becomes a reality and Peloton is successfully integrated into Apple’s operations, restoring growth and profitability to the fitness business. That still won’t move the needle for the tech giant.

Apple basically sees the entire world as its market. Only a small percentage of these people are interested in spending four figures on exercise equipment. Nonetheless, if this deal goes through, it will undoubtedly benefit Peloton much more than Apple.