Peloton (NASDAQ:PTON) stock is making a rather surprising move lower today. At the time of this writing, PTON stock is down more than 4% despite the company announcing a rather intriguing partnership with Google and Fitbit parent Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) to bring Peloton classes to Fitbit smartwatches.
This partnership is aimed at improving the utility that Fitbit watches provide users. In addition to a number of other upgrades Alphabet announced during its Google event this week, providing users with access to Peloton classes on their watches is certainly intriguing.
One might think that PTON stock would rise on such an announcement, given the reach Fitbits have within the fitness community. Let’s dive into why that’s clearly not the case today.
PTON Stock Plunges on Key Partnership Announcement
From my perspective, the key issue the market appears to be pricing in with this product collaboration seems to be the perception that Peloton’s days as a manufacturer of high-margin exercise equipment and physical products are over.
Indeed, the company has been losing money at this business for quite some time. Supply-chain issues during the pandemic (in combination with incredible demand) led to over-production of many of the company’s core products and ultimate price cutting down the line, which hurt margins.
The company’s subscription business for its online classes has seen some growth of late. But the question around whether Peloton can exist on its own is one many have been asking for some time.
While this partnership should improve the company’s reach and generate a likely bump in subscriptions for its classes, it’s also possible that users may move further away from ordering Peloton-branded merchandise moving forward. If that’s the case, Peloton could be cannibalizing its own sales to a certain degree.
And then there’s the issue of whether this partnership was the right one for the company to make. There are other smartwatch makers in the market — most notably Apple (NASDAQ:AAPL) — which may or may not have partnered on such a concept. For now, the market appears to be taking the view that most news is bad news for Peloton. Good or bad, that’s the way things seem to be for right now.
On the date of publication, Chris MacDonald did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.
