Peloton Interactive (PTON) has been struggling badly over the past year, as evidenced by its deteriorating stock price, but the company may be able to regain some lost ground through its recent deal with Amazon (AMZN).
The company will now sell its fitness equipment (except for the Bike+ machine and Tread treadmill) and apparel on the retail giant’s website.
“From a fundamental perspective, I think it opens a new door to Peloton’s distribution strategy,” MKM Partners’ Managing Director of Internet & Capital Markets Rohit Kulkarni told Yahoo Finance Live (video above). “They’ve always run their own warehouses, their own kind of stores and their own website. Amazon is the largest distributor of all e-commerce products. So I think this is a very big positive step for Peloton. No matter how you slice it, that drives the company forward.”
After the announcement, Peloton shares jumped more than 20%, though the stock gave up all of those gains after the company’s disappointing fourth-quarter earnings results, which missed analysts’ expectations.
Kulkarni still sees “lots of possibilities” for Peloton’s future with its deal with Amazon.
Peloton CEO Barry McCarthy “has shown a lot of signs that he’s willing to take risks with the model, with the business model, with distribution, with content and everything around it,” Kulkarni said. “It basically makes Apple Card completely in a way that Peloton could be a big house from now on. The way I feel about what Amazon and Peloton can do together — I think there’s no better set of consumers than Prime subscribers.”
Peloton could bring a ‘halo’ to Amazon
The pandemic led to exponential growth in demand for Peloton’s bikes, but as vaccines became available and COVID restrictions eased, the company faced major headwinds.
The stock hit a high of $162.72 in December 2020, but since the start of 2022, it has fallen more than 71%. The stock is currently trading at less than $11 per share.
According to Kulkarni, Amazon is the perfect partner for Peloton, which is gaining more market share in the health and fitness industries. The two companies previously worked together on Amazon Web Services (AWS), meaning a working relationship already exists.
With Amazon looking to expand its reach into health and fitness, “there’s no better company than Peloton with a brand,” Kulkarni said. “So I feel more positive about Peloton right now, but there could be a halo coming to Amazon as well.”
Besides access to Prime subscribers, he said, there are other short-term benefits from the partnership that could help Peloton’s finances.
“Peloton holds a lot of old stock,” Kulkarni said. “Now they can put that old inventory in Amazon’s warehouses. That helps them with short-term costs. Plus, I think Peloton also offers free delivery, as well as free installation. They started charging that in January. Now, when it comes to Amazon, they’re trying to squeeze out that cost.”
MKM currently maintains a “neutral” rating on Peloton’s stock, but that could change if the company develops a viable unit business model, Kulkarni said.
“When they build a bike, when they want to ship it from overseas and when they want to bring it to your door, the dollar they spend to build a bike, they spend more to bring it to your door,” he said. he said. “That’s not sustainable, in my opinion. They’re dropping the price of the bike and as a result, their gross margins are shrinking… They’re somewhere in between right now.”
Ethan is a writer for Yahoo Finance.
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