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Late last week, The WSJ put out news that Amazon (NASDAQ:AMZN) was reportedly interested in buying Peloton (NASDAQ:PTON). We’ve written recently about the demise of the exercise bike manufacturer. It’s been plagued with stalling demand as pandemic restrictions have been lifted. But with the market cap down to circa $8bn from $50bn not that long ago, is a buyout from Amazon really on the cards?

Why the news isn’t that hard to believe

Shares in Peloton are up 22% in the premarket based on the above news. Therefore, it’s clear that investors are taking this news seriously. It also highlights that a potential buyer would be seen as a good thing for the ailing brand.

From Amazon’s perspective, it’s not that out of character to consider a purchase. Although Peloton doesn’t operate in Amazon’s core market, the spewing behemoth has a presence in many sectors these days. For example, consider the purchase of Whole Foods for $13.7bn back in 2017. At the time, this seemed slightly out of position for the company, but since then it’s made it stick.

In fact, buying Peloton would allow Amazon to access the data records built up from the online workout classes, valuable information that it could then cross sell via Amazon Prime Video, or target via specialized sport product selection via the retail arm. In terms of numbers, it also wouldn’t hurt Amazon to buy the business. Even with the share price spike on the speculation, it wouldn’t appear to cost more than what it paid for Whole Foods several years ago.

From looking at the latest results posted last week, there’s also plenty of momentum behind Amazon. For Q4, it posted a net sales figure of $137.4bn, up 9% on the same period last year. For the full-year, this brought net sales up to a whopping $469.8bn, a staggering figure. 

Still risks ahead

Before anyone gets too excited by the speculation, we should make it clear that Amazon hasn’t come out to confirm or deny the report. Other potential buyers have been named, including Nike. Therefore, we’re keen not to focus on Amazon shares, but rather Peloton.

We’re also cautious given the fact that with or without a buyer, Peloton fundamentally has problems. Financial issues can be solved via injections of cash from a buyer. Yet the core falling demand of customers can’t be changed that easily. We think you really have to be convinced that the surge in demand over the past couple of years wasn’t purely driven by the pandemic. If not, then it’s difficult to see a huge amount of value going forward.

If a buyer did come in, it might be a case of stripping the business of the IP and other assets, and merging together. All of this remains to be seen, but we do expect some updated news in coming weeks. 

For the moment, we’ll be waiting on the sidelines for more concrete news before deciding whether to buy.

AlphaPicks owns shares in Amazon. To trade shares and crypto, register here with our preferred partner, EToro.

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