Peloton to acquire Precor

https://investor.onepeloton.com/news-releases/news-release-d…

Acquisition expected to establish Peloton’s U.S. manufacturing footprint, enhance R&D capabilities, and accelerate growth of commercial verticals
NEW YORK, Dec. 21, 2020 /PRNewswire/ – Peloton (NASDAQ: PTON), the leading interactive fitness platform, today announced that it has entered into an agreement to acquire Precor, one of the largest global commercial fitness equipment providers with a significant U.S. manufacturing presence, in a transaction valued at $420 million USD. With the acquisition, Peloton plans to establish U.S. manufacturing capacity, boost research and development capabilities with Precor’s highly-skilled team, and accelerate Peloton’s penetration of the commercial market.

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What Peloton gets:

-625,000 sq ft of manufacturing capacity which will speed up production/delivery before the end of 2021
-Precor will also help Peloton expand into the commercial market with its relationships

About Precor:

-Precor sells stationary bikes, ellipticals, treadmills, climbers and strength-training equipment to gyms, hotels, apartments, college campuses, etc.
-Precor also operates a fitness cloud called Preva, where users can also set goals, access entertainment, and track progress.
-The Preva Network encompasses more than 120,000 connected units in over 11,000 facilities across more than 100 countries. It logged over 1 billion workouts last year. It seems functional but integrating Peloton’s app could be a big boost to engagement and attract people to gyms

Initial Thoughts:

I’m positive about the acquisition. In addition to the new US manufacturing capacity and faster deliveries, getting into commercial will make Peloton’s growth more sustainable post-lockdown. It also opens the door for Peloton to enter additional fitness segments.

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Agreed!

I really like this acquisition

  1. Expands the product into hotels and college fitness centers. I see two benefits to this. Serving as an opportunity for customers to discover Peloton, and also for existing customers to get workouts in while not at home.

  2. By gaining Precor’s production facilities, it can help relieve the bottleneck causing long delays for the Bike+

  3. Could eventually help with efforts to create a pre-owned inventory. This is a stated goal of management but customers have not wanted to trade in old bikes. I could see used bikes and treads being refreshed in hotels and college fitness centers in order to build pre-owned program.

-marketmusician

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I like this acquisition. As noted above, it has potential to introduce more people to Peloton’s products than might otherwise encounter them. I see a big bonus for them as hotels and apartment complexes try to attract clientele at higher price points. Staying at a place that offers their bikes (and later on, other equipment) will be attractive for some people. And if you are riding a Peloton at home, the exercise bike at the Holiday Inn just isn’t going to cut it. I also see being able to access your personal training program on the hotel or fitness center’s bikes via the cloud. So yes, all around I like the acquisition.

I do have one concern, and that is whether they are taking on any liability for allegedly faulty equipment that this company manufactured in the past. Similarly, whether there are warranties in place that might be costly to honor.

Regards,

Dorset, Long PTON

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I have a precor amt at home. Precor has good, commercial grade products. Also it’s newest console, the P82, can likely run PTON’s content.

Precor really lagged in SW and content development but it’s machines were solid in my opinion.

Precor has a lot of presence in hotels. That’s how I discovered the amt, and why I eventually bought one. About half the gyms I’ve gone to have some precor equipment.

I think this deal makes a lot of sense for PTON and for Precor.

Rob

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Life Fitness then Precor are probably the brands that I see most of in Singapore Condos and in hotels/gyms across Asia. Nordic I used to see for a few specific elliptical machines but a lot less of now than I used to.

I like the idea of the merger and seems a reasonable price for a strategic play.

I need to think about what this will do to the terminal growth rate of Peloton. It definitely means that Peloton come with a substantial hardware business model attached.

Ant

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Precor really lagged in SW and content development but it’s machines were solid in my opinion.

I have a Precor that I bought in 2004. I have gone through fits of using it over the years. My daughter, a Div I college cross country runner has been using it daily without complaint since the gyms closed in PA Dec 10th.

When we had it delivered, me and my brother took it apart and brought it upstairs and put it back together. It works. Every time. Sometimes after 2 years of inactivity.

Also after I installed it I looked up and called their 800 number asking for support. The rep told me that although I did not qualify for free support, he did not recommend paid support because that is really only necessary for machines that are used 6+ hours a day and even then only once per year. Just keep it dust free (we cover it with a sheet) and dry.

This model does not have a complex computer. It has an older display: total steps, steps per min, etc…

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An absolutely brillaint acquisition, in my opinion. Here are a few of my favorite tidbits/quotes I have read -

" Peloton will be able to control the entire production process, from design to ship, and increase total production scale, while maintaining a high level of product quality. By making fitness equipment closer to U.S. consumers, Peloton will be able to deliver connected fitness products to Members sooner."

“The acquisition would add a team of nearly 100 dedicated research and development employees to Peloton’s accomplished R&D team. With decades of experience designing and engineering cardio and strength fitness equipment and user experiences, the Precor team plans to work with the Peloton R&D team to design and create the next generation of connected fitness experiences.”

"Under the Peloton umbrella, Precor plans to make the award-winning Peloton experience accessible to more people through its long-standing relationships with hotels, multifamily residences, and college and corporate campuses. Precor will also continue to service its global network. When the transaction closes, the parties plan to make Peloton connected fitness products available to Precor’s broader network of commercial customers in Peloton’s existing markets."

With a snap of its fingers, Peloton just expanded its TAM exponentially. I always assumed the company would make a move into the commercial market, but this is what I would call a grand entrance. Precor is a top brand found in many hotels, gyms, colleges, apartments, etc. across the globe. This could really lift Peloton’s international business. In addition to this, the acquisition will alleviate some of those supply concerns. I know some people exited the stock because of these concerns, but I think this is the best ‘problem’ any hardware company could have. I believe this acquisition could give a huge boost to its revenue growth in 2021 and 2022 as it begins to come up against the difficult comps from this year.

This company is on its way to becoming a fitness industry giant.

Long PTON

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I am so glad to put in 20% in PTON early December when I reduced number of stocks to 6 now.

To summary the impact of this acquisition:

  1. Help with Production, delivery time.
  2. Expansion of total addressable market. It no longer just in the work out at home market. It’s also: hotel, apartments etc…

Just dug a bit for company history.

Two interesting points:

1.It was started with a Kickstarter campaign.

2.“Cofounder and CEO John Foley spent 3 years pitching the company to thousands of potential investors, who rejected the idea. “No investors wanted to look at this thing. They wanted nothing to do with it,” Foley said in an interview.”

It reminds me of the lack of interest for PTON on this board because it’s not a pure SaaS. I think this board’s extreme focus on SaaS is blessing and also an hindrance to a diversified portfolio across industries. I was focused in Dividend stocks and missed out growth stocks. Likewise, Growth is growth. I learned to not discriminating the products or fall in love with the products or certain investment styles.

When Peloton grows revenue 100% per year, it means it is doing a lot of things right.
One more recent news indicating their continued growth:
Early December, Peloton made an announcement to grows Plano Campus By More Than 100,000 Square Feet and plans to bring up to 1,600 more jobs in a variety of corporate functions and experience levels to the North Texas location.

One stickiness of Peloton is that it acts as an anti-depressant. Using Peloton products not only improve the health of their body but also improve their mental health. So, they will stick with Peloton. Peloton has a high Net Promotor score which is 91. In general, sport related brand is very sticky business. Think about Nike.

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