Peloton stock (NYSE: PTON) is trading higher in early US price action today after the company announced that it would sell its equipment on e-commerce giant Amazon.
Peloton stock is down sharply from its all-time highs and the company has taken several steps to transform its business. It also appointed a new CEO who is now looking after the turnaround efforts.
Commenting on the Amazon deal, Peloton Chief Commercial Officer, Kevin Cornils said, “Expanding our distribution channels through Amazon is a natural extension of our business and an organic way to increase access to our brand.”
He added, “We want to meet consumers where they are, and they are shopping on Amazon. Providing additional opportunities to expose people to Peloton is a clear next step, as we continue to generate excitement for our unparalleled connected fitness experience.”
Customers buying Peloton equipment on Amazon have the option to either opt for self-assembly or seek the add-on service of an expert. Currently, the company would not charge extra for the delivery and the assembly service. So far, Peloton used to sell the equipment through its stores and e-commerce sites. However, as part of the restructuring, it has also closed some stores.
Peloton is Restructuring Its Business amid Plunging Stock Price
Recently, Peloton announced that it would partner with third-party logistics service providers to lower its costs. It added that the decision would lead to job losses at the company. It also called upon its employees to return to work from November 14 and joined the long list of US companies that are now moving from remote to an on-site or hybrid model.
The shift has especially hurt stay-at-home winners like Zoom Video Communications which lowered its guidance for the current fiscal year. Stay-at-home stocks have been underperforming the S&P 500 this year. After the recent rise in S&P 500, Wall Street analysts are mixed on whether the rally can continue.
Coming back to Peloton, it has taken several steps to revive the business. It lowered the bike prices earlier this year to clear the inventory but announced a price hike again within months.
Peloton has been looking at different ways to revive its growth as the once supply-constrained company now finds itself demand constrained. Peloton also scrapped the Ohio factory, where it was set to invest $400 million to manufacture products in the US. The company would now be selling the plant in order to raise cash.
During the most recent earnings call, Peloton made it clear that preserving cash was its top priority. As part of the restructuring, Peloton has fully exited the manufacturing business and would rely only on third-party manufacturers.
Stay-at-Home Stocks Have Crashed
Former stay-at-home winners like Peloton, Chegg, Teladoc Health, and Zoom Video Communications have been feeling the heat as the economies have reopened and these companies are finding it hard to repeat the stellar growth of 2021. However, some analysts have been advising investing in these beaten-down stocks. Cathie Wood, for instance, has been buying more Zoom and Teladoc Health shares.
Amazon Would Also Benefit from Peloton Deal
Amazon would also benefit from the Peloton transaction as it would help it increase its target market. It has been working to expand its target market and has been especially eyeing the healthcare sector.
Amazon is rumored to be among the bidders for Signify Health. It has already announced the acquisition of One Medical for $3.9 billion. Healthcare seems to be the new battlefront for Big Tech companies and several tech companies have acquired healthcare companies.
Amazon’s Q2 2022 earnings stood out among FAANG peers. After the Q2 earnings beat several, Wall Street analysts issued bullish notes and advised buying Amazon stock. JPMorgan raised its target price from $175 to $185 while Deutsche Bank raised its from $155 to $175. Goldman Sachs and Piper Sandler also raised Amazon’s target price by $5 to $175.
Wolfe and JPMorgan have listed Amazon stock as a top idea for the second half of 2022. Redburn believes that Amazon’s cloud business has the potential to become a $3 trillion company on its own.
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