The pandemic created perfect growth conditions for a variety of companies. Some simply added a lot of customers that would have eventually found their product anyway. That’s what happened with the Disney+ streaming service for example. People being stuck at home led to meteoric growth, but Walt Disney probably would have eventually captured those customers.
That’s not true for every product or fad created by covid restrictions. When was the last time you made that whipped instant coffee treat or baked any bread? (Probably not in a long while.) Two pandemic-era stock darlings that have struggled for the past year followed a different trajectory.
Both sell a good product that has widespread public support but operate in incredibly crowded markets. During the pandemic, both of these companies grew faster than would have been possible under normal circumstances. That created outsize expectations that neither brand can keep up with.
But, the reality is that while both of these pandemic darlings might find their niche and become good businesses (maybe not good investments) each one would be in a better position as part of a larger company.
That’s where Amazon (AMZN) or Apple (AAPL) enter the picture.
Amazon and Apple Both Have Health and Fitness Goals
Amazon has made a few missteps in the health space where it has shut down multiple projects that were designed to disrupt the status quo. The company has also failed to gain much traction with its Halo fitness devices. Apple has perhaps been more successful with its Watch and fitness subscription product, but it also has bigger aspirations in the space than it has been able to achieve.
Both companies have generally used a build versus buy model, but Apple did buy Beats for $3 billion and Amazon spent $13.7 billion on Whole Foods. Those were both strategic moves that fit each company’s longer-term goals.
Now, market conditions have made it possible for either company to acquire Peloton (PTON) or Teladoc TDOC — moves that would have been too expensive not that long ago. You can argue that either one or both, makes sense for Apple or Amazon to buy (and it seems likely that tires have at least been kicked behind the scenes).
Why Teladoc and Peloton Make Sense for Apple or Amazon
Teladoc has lost 82% of its value over the past year and it now has a market cap of under $4 billion. Peloton stock has followed a similar path over the past 12 months, dropping by 77% leaving it with a $2.45 billion market cap.
Those are astounding drops, but few people argue that Peloton and Teladoc offer bad products. Peloton sells a best-in-class bike that’s also pricier than many of its rivals. Teladoc was a market leader but it sells a product that’s hard to distinguish.
In both cases, being a product sold by a bigger company makes sense for Peloton and Teladoc. With Teladoc, for example, either company could bundle some of its virtual health services into its existing subscription products. That would give either Amazon or Apple a way into healthcare through a brand people like, that they may not be able to use because their insurance offers something similar
Peloton fits as more of a niche product, but Apple has made its entire product business about selling best-in-class items at premium prices. Amazon has had less experience doing that, but exercise devices fit the model it’s trying to build with its Halo fitness trackers. Both companies, of course, would benefit from owning Peloton’s subscription business.
Both of these deals make sense as the prices have gotten so low it’s hard to think that either company could prevent a sale if Amazon or Apple wanted to buy.
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