Peloton (PTON) trades higher after shareholder calls for sale
18:20, 24 January 2022
Amid rumours of a production shutdown, a pair of fictional heart attacks, and a stock price trading 80% below its highs, opinions remain mixed as to what Peloton Interactive should do.
In a scathing letter sent to Peloton’s Board of Directors Monday, Blackwells Capital CIO Jason Aintabi wrote that Peloton should fire its CEO John Foley immediately and put the company up for sale.
Peloton (PTON) stock moved higher Monday, up 7.54% to 27.80 versus the $25.80 opening share price on over 38 million shares traded, compared to the 21.6 million daily average trading volume. Peloton trades over the Nasdaq exchange under the ticker PTON.
Aintabi cites ten specific instances of malfeasance on Foley’s part, including a $1bn equity sale after assuring investors Peloton didn’t need more capital, signing an expensive long-term office lease due primarily to geographic convenience and naming his wife a Peloton executive, among other assertions.
Jill Foley heads Peloton’s new Apparel division.
“Remarkably, (Peloton) is on worse footing today than it was before the pandemic, with high fixed costs, excessive inventory, a listless strategy, dispirited employees and thousands of disgruntled shareholders,” Aintabi wrote. “And no wonder, the latter, given that Peloton underperformed every other company in the Nasdaq 100 over the last twelve months.”
“Mr. Foley should be fired as CEO,” Aintabi wrote. “Immediately.”
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Dropped from Nasdaq 100
Peloton was dropped from the Nasdaq 100 Index, effective today, due to its shrinking valuation over the past year. Peloton was replaced on the Nasdaq 100 by Old Dominion Freight Lines.
After disposing of its CEO, the board should put the company up for sale, Aintabi said. Aintabi names potential targets as complimentary to Peloton’s core fitness platform in the athletic apparel, video streaming and tech space.
Namely, Apple, with its Fitness+ platform and complementary health tracking services offered on its iWatch is noted as a logical new parent company. Additionally, Disney, Sony and Nike “could extend their presence in the home, in health and wellness and on the screen through Peloton,” Aintabi wrote.
“Given the mess that Peloton has become as an independent company, we are convinced that one or more of these strategic acquirers could provide significantly more value, with substantially less risk than Peloton is likely to generate for its shareholders on its own,” Aintabi wrote.
Should Peloton be a buyer?
Not everybody agrees Peloton needs to make such drastic changes. Citron Research Executive Editor Andrew Left thinks Peloton should buy a complimentary vertical, rather than sell to one. Namely, underperforming meal delivery company Blue Apron Holdings (APRN) should be an acquisition target, allowing Peloton to immediately grow its subscriber base while offering healthy dietary options as part of an overall health and wellness lifestyle.
In a report focused on Blue Apron, Citron’s Left cites the cross-over appeal between the two companies’ respective customers.
“Believe it or not of all the obvious potential acquirers (for Blue Apron) including large grocery chains and delivery companies, Citron believes the company most likely to acquire Blue Apron is Peloton,” Left wrote. “(Peloton) is facing the dilemma of how to grow its subscription revenue and the answer is to sell your customers more items.”
With greater than six million subscribers, Blue Apron’s relatively cheap valuation versus other meal delivery competitors makes it a good fit for Peloton to offer complementary products. “(Peloton) sells a lifestyle and the two key components of a healthy lifestyle are diet and exercise. (Peloton) lacks a dietary offering today.”
Noting a pair of Peloton executives who previously worked for Blue Apron, Christopher Jobes and Lillian Smith, and a relatively attractive $160m valuation “we cannot think of a better use of capital than buying (Blue Apron) which (Peloton) would be lucky to buy for anything under $40 a share,” Left wrote.
Blue Apron opened Monday at $7.90 per share, off its $12.76 52-week high set last month. Blue Apron trades on the NYSE under the ticker APRN.
Is Peloton undervalued?
JPMorgan Securities analyst Doug Anmuth, meanwhile, finds Peloton cheap at its current share price, reiterating the firm’s overweight recommendation and maintaining its $50 per share 2022 year-end price target.
Noting reports of a production halt were false, Anmuth concedes demand for home workout equipment has normalised to pre-Covid-19 levels, as expected, but cites the recent sell-off presenting a buying opportunity given current fundamentals.
At current levels, Peloton’s share price is roughly three times the estimated 2023 subscription revenues and ignores cashflow devices. Specifically, Peloton’s recent delivery fees should help near-term cash flow.
“(W)e believe slower traffic and demand are impacting the broader home fitness industry, not just PTON. While PTON will likely slow production to support sustainable growth exiting the Covid-19 pandemic, we do not expect a complete production halt,” Anmuth said. “Looking forward, we continue to believe headroom remains in the connected fitness opportunity across Bike & Tread, and (Peloton) should drive additional growth through commercial and international expansion.”