After the close on Wednesday, Lululemon Athletica (NASDAQ:LULU) and Peloton (NASDAQ:PTON) announced a 5-year strategic global partnership, sending Peloton shares higher in post and premarket trading.
The five-year deal will see Peloton become the exclusive digital fitness content provider for LULU. It will develop all content for Lululemon Studio beginning in early 2024. In addition, the apparel brand will become the primary athletic apparel partner for the connected fitness equipment company.
Reacting to the news, UBS analysts told investors in a note Thursday that they "believe the deal is an acknowledgement of the challenges LULU has faced growing its hardware business and the company's limited ability to develop content and Peloton's need to simplify its business through more effective partnerships for athletic apparel."
"The deal is complementary and furthers PTON's goal to simplify its business and essentially outsource the apparel business, at the same time leveraging its content library to gain access to a targeted pool of potential members, as the partnership gives LULU's Studio members access to Peloton content," they added.
At Bernstein, analysts said that 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."
Analysts added that Lululemon's foray into connected fitness has lost money from day one, while PTON's move into selling branded apparel has similarly fizzled. They also noted that the initial implications are small but the long-term benefit is around brand equity and customer acquisition.
Telsey Advisory Group analysts believe "the partnership is incrementally positive for Peloton, given Lululemon's brand strength, and we view it as a vote of confidence in the quality of Peloton's content."
"However, the near-term financial benefit for Peloton seems modest and will largely center around revenue-sharing of the Lululemon Studio All-Access membership fee," Telsey said.