Peloton stock soars on content partnership with Lululemon
Peloton (PTON) and Lululemon (LULU) have entered a five-year partnership that will make the at-home exercise brand the exclusive digital fitness content provider for Lululemon.
Lululemon will become the primary athletic apparel provider for Peloton while some Peloton instructors will be Lululemon Ambassadors. Additionally, Peloton will begin selling co-branded merchandise with Lululemon on Oct. 11.
Lululemon also announced it intends to discontinue sales of the Lululemon Studio Mirror before the end of the year and will also discontinue its digital app-only membership tier on Nov. 1. The company will continue to provide ongoing service and support for Mirror devices.
The Studio Mirror, which was initially aimed to rival Peloton in the at-home fitness market, largely flopped for Luluemon. In March, the company announced a $442.7 million post-tax impairment charge related to the Mirror business.
Peloton shares soared nearly 30% in after-hours trading following the news while Lululemon stock was little changed.
"LULU will earn some revenue share from its co-branded apparel sold by Peloton, while PTON will earn some revenue share from each Studio member that uses its workouts, but neither revenue stream is material," Bernstein analyst Aneesha Sherman wrote in a note on Wednesday night. "The bigger benefit to both brands is around [long-term] brand equity and customer acquisition. PTON expects an uptick in traffic to its stores and website as a result of LULU members using its workout app, including 13m free members being offered free PTON workouts."
The partnership comes at a crucial time for Peloton, which has struggled to grow revenue following a surge in interest at the height of the COVID-19 pandemic.
In August, the stock fell more than 20% in a single day after the company said it saw a slowdown in subscriber growth and the cost of its bike seat recall "substantially exceeded" its expectations.
"By leveraging one another’s capabilities, LULU and PTON are sensibly throwing in the towel on two failed business ventures outside their core competencies - Lululemon’s attempt at creating digital workouts and Peloton’s expansion into fitness apparel," Sherman wrote.
Josh Schafer is a reporter for Yahoo Finance.
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