William Gallagher
Investment firm Deepwater Asset Management is guessing that Apple will buy Peloton in the short term to boost subscription revenue — but the prediction ignores a few key factors why Apple probably isn't interested.
No more than Apple buying Disney, the idea that Apple will buy fitness firm Peloton will not go away. Typically the idea is predicated on just how Apple has enough money to buy it, or sometimes that it will be forced to if Amazon or Nike bid for Peloton in order to compete in fitness.
As spotted by Investing.com, the new prediction from Deepwater Asset Management is chiefly also to do with finance, but specifically in what the acquisition could bring Apple.
"Apple will acquire Peloton," says Deepwater's list of 2024 predictions. "Apple will look to bolster their workout segment in 2024 by adding fitness equipment to compliment the Watch and fitness tracking software."
"Peloton has a loyal subscriber base of about 3 million users that will add about $1.7B to Apple's subscription revenue," it continues, while entirely ignoring how Peloton is being sued over the deaths of children. "Additionally this fits well into Apple's continued investment in health and wellness."
The reason this prediction is getting more attention than most is that Deepwater Asset Management issues predictions every year, and says that its 2023 ones were remarkably accurate. They're definitely not remarkably clear, however, with the firm itself claiming a success rate for 2023 of "8.5 out of 10," with it having made 8 predictions and saying it was right about 7 of them.
It's also oddly hard to track back through what the firm says is seven years of these predictions, since some are branded Deepwater predictions, while others are "Loup's technology predictions," referring to the work of Loup Ventures. That firm's analyst Gene Munster has been working with Deepwater Asset Management since 2017, however.
Whether it's Deepwater's own work or a collaboration with Loup Ventures, in 2022, the company lists 7 predictions. While it does not clearly list a success rate, the descriptions suggest it was wrong for at least 4 of them.
For 2021, the firm appears to say it was completely right for 4 of its 9 predictions, and in some way half right for a further two.
The value of Peloton rose over the coronavirus pandemic, only to fall back again, while blaming Apple's iOS 14 App Tracking Transparency for its earning almost $1 billion less than expected in 2021. Although figures vary and are only estimates, it's likely that it would cost Apple at least $9 billion to acquire Peloton, and likely more.
While Apple regularly buys companies, $9 billion would be three times more than Apple has ever spent on any single acquisition. In 2014, it paid $3 billion to acquire Beats and ahead of the deal, pundits including Gene Munster scorned the rumors.
"We are struggling to see the rationale behind this move," wrote Munster when he was with Piper Jaffray. Calling it a "bad idea," he explained that "Beats would of course bring a world class brand in music to Apple, but Apple already has a world class brand and has never acquired a brand for a brand's sake."
Wesley Hilliard
Christine McKee
Malcolm Owen
Amber Neely
17 Comments
Big acquisitions are very rare from Apple. This is the time of year analysts make wild guesses in the name of New Year’s resolutions. With Beats, Apple needed to get Apple Music up quickly to compete. Another Beats style acquisition is not coming.
At the right purchase price, I could see this making a lot of sense for Apple. Peloton, for all of its current troubles, remains the biggest brand in terms of a fitness-focused subscription business, which fits nicely with Apple's focus on both health and subscriptions. In fact, just by buying the company, Apple's reputation for high quality and its hordes of cash for further investment would immediately reinvigorate the Peloton brand. But if they're going to do it, I'd say sooner than later is best, because the continued financial and hardware troubles at Peloton--which probably go hand-in-hand--can only serve to damage the brand.
Apple doesn't need Peloton for software; Apple is capable of creating fitness-related software and anything it creates would be fully and tightly integrated with the Apple ecosystem.
Apple's biggest priority is to push subscriptions like the Apple Fitness+ subscription. They want all the fitness equipment manufacturers to build their equipment so they integrate into Apple Fitness+. If they buy one manufacturer like Peloton, the other fitness machine manufacturers may ditch Apple Fitness+ integration as to not support their competition. On the other hand, I guess the same argument can be made with Apple Carplay and if Apple will make its own car and competing with the other car manufacturers.