Peloton (NASDAQ:PTON) shares are making a pretty surprising drop today. At the time of writing, PTON stock is down more than 4%, despite the company announcing a pretty interesting partnership with Google and Fitbit parent company. alphabet (NASDAQ:GOOG:GOOGLE) to bring Peloton classes to Fitbit smartwatches.

This partnership aims to improve the utility of Fitbit watches for users, and alongside a number of other upgrades announced by Alphabet during its Google event this week, allowing users to access Peloton classes on their watches is certainly interesting.

Given the reach Fitbits have in the fitness community, you might think PTON stock would soar after such an announcement. Let’s explore why that’s clearly not the case today.

PTON shares plummet after announcement of important partnership

From my perspective, the main problem the market seems to be pricing in with this product collaboration is the perception that Peloton’s days as a high-margin exercise equipment and physical product manufacturer are numbered.

In fact, the company has been making losses in this business for quite some time. Supply chain issues during the pandemic (combined with incredible demand) led to overproduction of many of the company’s core products and ultimately price cuts, which hit margins.

The company’s subscription business for its online classes has picked up a bit recently, but the question of whether Peloton can exist on its own is one that many have been asking for some time.

This partnership should improve the company’s reach and likely lead to an increase in subscriptions to its classes, but it’s also possible that users will order fewer Peloton products in the future. If that’s the case, Peloton could cannibalize its own revenue to some extent.

And then there is the question of whether this partnership was the right one for the company. There are other smartwatch manufacturers on the market – especially Apple (NASDAQ:AAPL) – who may or may not have collaborated on such a concept. Right now, the market seems to think that most news is bad news for Peloton. For better or worse, that’s the way things are looking right now.

As of the date of publication, Chris MacDonald had no position (either directly or indirectly) in the securities mentioned in this article. The opinions expressed in this article are those of the author and are subject to InvestorPlace.com’s disclosure policies.

At the time of publication, the editor in charge did not hold any positions (either directly or indirectly) in the securities mentioned in this article.