In Focus: Apple vs Peloton
Last week Apple's new services bundle got Wall Street and Main Street buzzing. The service bundle, which some people had expected from the company last year is finally here, and it came with a surprise, Apple Fitness +, the company's jump into the world of fitness.
Apple's (AAPL) fitness offering couldn't have been released at a better time. The global coronavirus pandemic has drastically changed how we live, work, and exercise. Gyms, big and small all over the U.S. are closing, either due to social-distancing regulations, the inability to afford the expense of the additional cleaning needed, or because they were unable to secure PPP funds. In either case, people are losing their local fitness hubs .
In addition, there has been no better advertisement to try and maintain a healthy lifestyle than a global pandemic that attacked the elderly and others already dealing with health issues. Being fit and maintaining a healthy lifestyle has never been more valuable in my lifetime than now. Apple Fitness Plus is the company's attempt to capture some of the flight to fitness.
For Peloton (PTON), the company hit the hardest socially on the day Apple announced it's Fitness + plan, the road ahead just got a little bit tougher. The fitness space was already crowded. Lululemon's purchase of Mirror earlier in the year put a lot of money behind a much smaller competitor, and now add Apple into the mix. Peloton investors hit the sell button the day after Apple's keynote, but eventually the stock closed up on the week.
Bank of America analysts Wamsi Mohan believes Apple Fitness + could be a $2 billion opportunity. This is big, especially taking into account that Peloton hasn't hit $2 billion in revenue as a company yet. Mohan believes Apple could generate a user base of 100 million Fitness + users globally. But investors should still tame their expectations.
When Apple releases a service, the words of Scott Galloway ring in my ears, that Apple is a luxury product. When I take that into consideration, I curb mine and the rest of Wall Street's high expectations of the service, even though it has an Apple logo attached. Imagine if Louis Vuitton came out with a service that was geared towards Louis Vuitton bag owners, how much would you reasonably expect that to be worth?
It's the same for Apple, as a luxury product, it's appeal, and the appeal of it's services stretch but so far, specifically when it comes to software offerings. An Android user can see a benefit from a pair of AirPods or a set of Beats or even an iPad, but they don't need iCloud or Apple Fitness or Apple Music. And Apple TV +, while better than I expected still doesn't have that show, the show that people can't stop talking about at the water cooler or that dominates social media feeds for weeks.
With that said, Fitness+ doesn't have to be a huge success for Apple to win, and the same goes for Apple TV + which I was wrong about. Upon the gear up to its release and even after it's eventual debut I was convinced that Apple TV + would be a big loser in the streaming wars, with the company shutting it down or selling it off after a few years. But I was wrong, Apple TV + and Apple Fitness + will be around for a while. Apple will win with it's services, and not because it dominates, but because it confuses.
Apple is building its version of Amazon Prime, another service that doesn't win by domination, because it doesn't dominate any category. Prime wins because it overwhelms and confuses.
What Exactly Did I Sign Up For?
What started out as a yearly subscription of $100 for free 2 day shipping has been beefed up with a host of products that I use from time to time, and feel like I'm not paying for. I jump into Amazon Music to check out their playlist from time-to-time, and there are several shows I watch on Prime Video. In those rare times when I go months without making an Amazon order, I usually will have watched enough Prime Video and listened to enough Amazon Music for me to feel like I've got my money's worth.
For the budget conscious Prime has been a win. Amazon has bundled us without us recognizing it, and I suspect they'll add their cloud gaming service to the bundle in the near future as well.
This looks to be Apple's strategy, bundle and confuse. For $180 a year an individual can get access to all of Apple's services whether they want them all or need them all.
Will I be a Fitness + user, probably not, but for music, tv, iCloud, and news I'm all in, everything else would be a bonus for me. I think other Apple users have their own combination of these services they'd consider a deal as a bundle and the ones they'd consider a throw in. Either way it's a win but maybe not a big win.
Fitness + wont dominate the fitness market, Apple Music will likely never beat Spotify, and Apple TV+ won't top Netflix, and they don't have to for Apple to be a big winner long term for investors.
Time to Buy
With all the hype and excitement, I don't think this is the time to invest in Apple. From a review of the weekly chart, the last four weeks don't indicate strength. The stock has made a massive move up off of the late March low and is due for a pull back.
The last time Apple's stock split in 2014 there was a few weeks were it stalled and traded sideways. Thinking back on that time, there were a lot of articles pointing to Apple's run being over. In any case the company found its footing and the stock went on a major run. I expect the same to happen now.
On the current daily chart the stock price has fallen below it's 50-day moving average. My thought is that the stock price keeps falling to around the $100 level, but if it doesn't I'm not opposed to accumulating shares as it crosses above its 50-day moving average.
I still maintain that we're not in the economic environment that supports the masses going out and purchasing $1,000+ phones, just to simply upgrade a phone that is still working, but over the long term the economy will get better and Apple will benefit. Also, Apple's stock is one that causes even the biggest market skeptics to hit the buy button when they see it at a value price, so it never stays down for long.
Apple's bundle, it's about time. Apple Fitness +, it won't dominate the landscape. Apple's bundled service offering, won't win big, but it will win. Apple's stock, nearing accumulation levels.