2 Ways Peloton's Smart New Acquisition Will Help It Grow
On Dec. 21, Peloton (NASDAQ: PTON) announced that it's acquiring Precor, one of the largest global fitness manufacturers, for $420 million in cash. While it looks like a small acquisition in relation to Peloton's $40 billion market cap, it should significantly expand Peloton's total addressable market for two key reasons.
Any direct-to-consumer business is probably familiar with the difficulties around logistics and delivery. Since Peloton outsources very few components of its manufacturing and delivery process, it's no exception. In fact, thanks to the COVID-19-induced demand Peloton is seeing, it's having a hard time delivering bikes or treadmills in a timely manner. In each of Peloton's three previous conference calls, management has mentioned customers' elongated wait times. While backlogs are often a strong sign of demand, most Peloton customers would prefer quicker delivery.
Currently, the shipping delays are due to limited manufacturing and delivery capabilities. Peloton has made prior efforts to increase production capacity by purchasing a Taiwanese manufacturing facility called Tonic Fitness in 2019, but up until now, most manufacturing has been done in Asia, meaning Peloton bikes end up taking a while to ship to the US customers. That's where Precor comes in.
Source Fool.com
