Peloton Interactive (PTON) has been struggling severely over the past year, as evident in its deteriorated stock price, but the company may be able to regain some lost ground through its recent deal with Amazon (AMZN).
The company will now be selling its fitness equipment (aside from its Bike+ machine and Tread treadmill) and apparel on the retail giant’s website.
“From a fundamental standpoint, I think it opens up a new door into Peloton’s distribution strategy,” MKM Partners Managing Director of Internet & Capital Markets Rohit Kulkarni said on Yahoo Finance Live (video above). “They have always sorted out 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 cut it, this takes the company forward.”
Following the announcement, shares of Peloton soared more than 20%, though the stock lost all of those gains after the company’s disappointing fourth-quarter earnings results, which missed analyst expectations.
Kulkarni still sees “a lot of possibilities” for the future of Peloton with its Amazon deal.
Peloton CEO Barry McCarthy “has shown a lot of signals that he’s willing to take risks with the model, with the business model, with distribution, with the content, and everything around it,” Kulkarni said. “He’s essentially completely doing the Apple Card in a way that Peloton could be a big home run from here on out. 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 ‘halo’ to Amazon
The pandemic brought on an exponential increase in demand for Peloton’s bikes, but as vaccines became available and COVID restrictions faded, the company faced major headwinds.
The stock reached a high of $162.72 in December 2020, but since the beginning of 2022, it’s off more than 71%. Currently, the stock is trading at less than $11 a 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 wanting to further its reach into health and fitness, “there’s no better company than Peloton with a brand name,” Kulkarni said. “So I feel more positive for Peloton right now, but there could be a halo coming to Amazon too.”
Aside from the access to Prime subscribers, he said, there are other short-term benefits to the partnership that could help Peloton’s financials.
“Peloton is holding on to a lot of old inventory,” Kulkarni said. “Now they can put that old inventory into Amazon warehouses. That helps them with the near-term costs. On top of that, I think Peloton is also offering free delivery, as well as free setup. They started charging for that back in January. Now when it comes to Amazon, they’re trying to eat up that cost.”
MKM currently maintains a “neutral” rating on Peloton stock but that could change if the company develops a sustainable unit business model, Kulkarni said.
“When they make a bike, when they want to ship it from overseas and when they want to get it to your door, the dollar they spend to make a bike, they’re spending more to actually get it to your door,” he said. “That’s not sustainable, in my opinion. They’re dropping the price of the bike and hence, their gross margins are shrinking … They’re somewhere in between right now.”
Ethan is a writer for Yahoo Finance.