The pandemic has created ideal growth conditions for a variety of companies. Some simply added too many customers who would have eventually found their product anyway. This is what happened with the streaming service Disney+, for example. People stuck at home led to rapid growth, but it’s possible that Walt Disney eventually acquired those customers.
This is not true for every product or fashion created by covid restrictions. When was the last time you made instant coffee or baked any bread? (Maybe not for long.) Two pandemic-era stock darlings who have struggled over the past year have followed a different path.
They both sell a good product that has widespread public support but operate in incredibly crowded markets. During the pandemic, both companies have grown faster than would have been possible under normal circumstances. This has created huge expectations that no brand can keep up.
But the truth is that while both of these sweethearts might find their niche and become good businesses (maybe not good investments), each would be better off as part of a larger company.
This is where Amazon (AMZN) or Apple (AAPL) Enter the image.
Both Amazon and Apple have health and fitness goals
Amazon has made a few strides in the health field, shutting down several projects designed to disrupt the status quo. The company also failed to gain more momentum with its Halo fitness equipment. Apple may have 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 generally used the build-to-buy model, but Apple bought Beats for $3 billion and Amazon spent $13.7 billion on Whole Foods. Both moves were strategies that fit in with each company’s long-term goals.
Now, market conditions have made it possible for either company to acquire Peloton (PTON) Or Teladoc TDOC – moves that would have been expensive not so long ago. You could argue that one, or both, makes sense for Apple or Amazon to buy (and it seems likely that the frames have been kicked up behind the scenes at least).
Why Teladoc and Peloton make sense for Apple or Amazon
Teladoc has lost 82% of its value over the past year and now has a market value of less than $4 billion. Peloton has followed a similar trajectory over the past 12 months, dropping 77%, making it a market capitalization of $2.45 billion.
These are amazing drops, but few would argue that Peloton and Teladoc make bad products. Peloton sells a bike that is best in class and is also more expensive than many of its competitors. Teladoc has been a market leader but sells a hard-to-recognize product.
Either way, being a product that a bigger company sells makes sense for Peloton and Teladoc. With Teladoc, for example, either company can bundle some of its virtual health services into existing subscription products. That would give Amazon or Apple a way to access healthcare through a brand that people like, and may not be able to use because their insurance offers something similar.
Peloton suits more than a niche product, but Apple has made its entire business all about selling best-in-class items at premium prices. Amazon has less experience doing this, but the exercise devices fit the model you’re trying to build with the Halo fitness trackers. Both companies would of course benefit from owning the subscription business in Peloton.
Both of these deals make sense since prices are getting so low, it’s hard to think that either company could block the sale if Amazon or Apple wanted to buy.