Could Competition From Apple Derail Peloton? Not So Fast, Analysts Say

TOPLINE

Following a report of possible competition from Apple, Peloton’s stock plunged—but then quickly recovered—on Thursday, and Wall Street analysts remain confident that the exercise-bike company can maintain its lead in the virtual fitness space.

KEY FACTS

In a bid to compete with the likes of Peloton and Nike, Apple plans to offer a new subscription service for digital fitness classes via an app for the iPhone, iPad and Apple TV, Bloomberg reported Thursday.

While the news spurred a brief Peloton well-off with shares dropping nearly 5% in early trading on Thursday, the stock recovered after the market open and finished the day up 2.1%—even higher than Apple’s gain of 1.8%. 

Many Wall Street analysts were unfazed by Apple’s announcement:  “Investors are still confident in Peloton, as the stock’s recovery today shows,” says James Hardiman, managing director of equity research at Wedbush.

Peloton’s “marriage of hardware and software” has been revolutionary, says Hardiman, adding that “unless Apple takes this a step further, I wouldn’t think that it would significantly slow the pace of growth at Peloton.”

Cowen analysts similarly wrote in a note on Thursday that Peloton has a “unique position as a leader” in virtual fitness, “given its vertically integrated platform and highly passionate, growing user base across Bike, Tread, and expected additional hardware offerings.”

What’s more, consumers are likely to remain wary about returning to gyms for quite some time, Cowen analysts point out, meaning that Peloton’s popularity and subscription base amid the pandemic will continue to surge.

Crucial quote

“If Apple had announced they were coming out with a new ‘iBike,’ for example, Peloton’s stock would be down 20% today,” says Hardiman. While competition from Apple is certainly a “tangible threat” and something that Peloton might need to be wary of in the future, it doesn’t yet seem like Apple is willing to spend the money to compete and become a market leader in virtual fitness, he adds.

Key background

Peloton has thrived during the pandemic. With gyms closed and many people stuck exercising at home, the company has become a fast favorite among those on Wall Street who bet on ‘stay-at-home’ stocks. Peloton shares are up over 116% so far this year, rising nearly 40% in the last three months alone. Wall Street analysts are quite bullish on the stock: 88.5% who cover Peloton currently assign it a “buy” rating, according to Bloomberg data. 

What to watch for

When looking at Peloton’s current competitors—such as NordicTrack and SoulCycle, “I always felt the existential threat rather came from the Big Tech companies who can afford to spend Peloton’s entire market capitalization,” says Hardiman. Apple, with its gigantic $2 trillion market capitalization, easily dwarfs Peloton’s $18.8 billion valuation. “To the extent that Apple has interest in going deeper into the fitness space, the next question is do they build or buy?” Hardiman says. “Why would the Big Techs bother going down the same path that took Peloton five years to get here, especially when they could just buy Peloton outright?” he speculates.

Further reading

Stocks Fall As Coronavirus Stimulus Talks Stuck In A ‘Stalemate’ (Forbes)

S&P 500 Nears New Record High Amid Coronavirus Vaccine Optimism (Forbes)

Airbnb Reportedly To File IPO Paperwork Later This Month (Forbes)

Three Major Issues Coming Up That Could Make Or Break The 2020 Stock Market (Forbes)

Full coverage and live updates on the Coronavirus

Comments are closed.