As Peloton Interactive (PTON) onboarded new CEO Barry McCarthy in February, activist investor Blackwells Capital LLC maintained its stance that the at-home workout company should sell. Peloton, a COVID-19 pandemic darling that has struggled to maintain its once-shiny lacquer, has been notoriously resistant to the notion of a buyout, but reports that the company will sell up to a 20-percent stake show a changing tune.
Peloton reportedly has a few top candidates for the buyout, and this decision could be the deciding factor in the company’s near-term success. In the meantime, shareholders wavered as the stock shed about 10 percent in the first hour of trading on Friday, May 6.
Peloton sources divulge a potential minority equity sale.
Peloton is considering selling a large minority stake worth 15 percent–20 percent, according to sources reporting to The Wall Street Journal. Talks about the sale are in the early stages, and negotiations could still go in any direction (or nowhere at all).
Peloton is just days away from its next earnings report on May 10. The previous earnings report for the second quarter of fiscal 2022 shows a net loss of $439.4 million. As for forthcoming earnings expectations, analysts predict PTON stock will continue to falter. Even Peloton itself recognizes that 3 million subscriptions are estimated to close during the full fiscal year 2022.
Peloton sources divulge the top candidates for potential equity sale.
Amazon.com (AMZN) is reportedly one of the top candidates as Peloton hunts for a buyer. With up to 20 percent equity on the line, the outcome of the sale could change the trajectory for PTON stock. The two companies have even been in talks to discuss a 100-percent acquisition, though no progress has been made.
Another potential candidate is Nike Inc. (NKE), a move that would align with Nike’s fitness theme.
Both Amazon and Nike have fallen victim to the YTD tech slump, though neither are in the red as much as Peloton. PTON shares are down 55.6 percent YTD as of May 6. In the trailing 123 months, the shares are down a staggering 81.34 percent. The company’s $5.18 billion market cap is just a fraction of the $50 billion it once boasted.
To be fair, current market conditions aren't as amenable as they once were. Factors like rising interest rates, hyperinflation, and shifting consumer priorities have all contributed to Peloton's current state. Still, rapid growth followed by prolonged degradation isn’t a good look.
Should PTON sell?
Formerly of Spotify and Netflix, McCarthy is confident that he can turn things around. He wants to apply the subscription-model successes he instituted in his previous executive roles. However, shareholders haven't been patient with Peloton’s lingering bearishness.
With a canceled $400 million Ohio-based factory and a slashed cohort of 2,800 employees, Peloton will need to do more than cut costs. It may need some acquisition-sourced capital and a change of pace, which a partial sale would generously provide.