Peloton takeover: Latest PTON stock price plunge revives Amazon, Nike acquisition chatter
By Jenny McCall
11:30, 26 August 2022
Struggling excercise bike and online workout company, Peloton (PTON), may have to shift gears, as its fourth-quarter earnings on Thursday not only caused its stock price to plunge but also reignited discussions on whether the embattled group will be in line for a takeover bid soon.
PTON, share price fell 18% on Thursday, as it reported an operating loss of $1.2bn (£1.0bn) in its fiscal fourth quarter and revenue came in below Wall Street expectations.
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Peloton Interactive (PTON) share price chart
PTON is meeting resistance
PTON CEO Barry McCarthy said in its quarterly report: "The naysayers will look at our Q4 financial performance and see a melting pot of declining revenue, negative gross margin, and deeper operating losses."
"They will say these threaten the viability of the business. But what I see is significant progress driving our comeback and Peloton’s long-term resilience. Important milestones reached include new executive leadership, renegotiated supply contracts, and significantly reduced cash outflow."
PTON has been struggling for some time. The fitness group made a name for itself during the pandemic, when furloughed remote workers purchased stationary at home bikes in the hope they could maintain their fitness regime, despite gyms closing. This sudden shift in consumer habits gave PTON share price a boost.
But Peloton has failed to gain greater traction since the lockdowns ended and fitness facilities reopened, leading consumers to cancel their online workout subscriptions and return to the gym.
Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown, wrote in a note: “Peloton provided a solution for those mourning the closure of gyms and exercise classes during lockdown. It also offered users an immersive – and very lucrative – subscription to classes. Peloton’s revenue during the pandemic more than doubled to $4.0bn.”
“But Peloton is having to pedal very hard. Along with those extra sales came huge hikes in costs. Research and development spending more than tripled to $210.7m last year. All-in-all, that means the group doesn’t currently generate any profit and is heavily loss making. A pattern that’s expected to continue for now.
Lund-Yates stresses that these conditions are unlikely to ever be as supportive as they were during the pandemic, “so if turning a profit now is a challenge, when will it happen?”
The group's share price has fallen 69% this year and PTON is losing a vast amount of its subscribers. Peloton (PTON) is also struggling to sign up new subscribers to its online workout services.
“As household budgets around the world, including in the US which accounts for 93% of Peloton’s revenue, feel the pinch, new gym equipment loses its appeal, “Lund-Yates added.
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Possible takeover bid?
All this bad news has led to investors and analysts to speculate as to whether the group is an acquisition target.
In January, activist investor Blackwells Capital issued a letter urging for the then CEO, John Foley to be fired and for the group to pursue a sale. Blackwells said in its letter that possible buyers included, Apple (AAPL), Nike (NKE), Amazon (AMZN) and Walt Disney (DIS).
Foley left shortly after Blackwells' letter and he was replaced with the former chief financial officer of Spotify, Barry McCarthy.
PTON reported a 28% drop in sales yesterday, to $678.7m, fuelling more talk around a takeover bid. With its share price currently at $11.01, falling way behind its pandemic highs of $171, the road to recovery is rough and investors are gearing up for more volatility, as consumer spending continues to decline due to rising inflation.
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Rising inflation may help PTON
But all is not lost. On Wednesday, PTON announced its intention to start selling its equipment via the online retail site Amazon (AMZN) to regain some of its lost revenue.
Kevin Cornils, Peloton's chief commercial officer, said in a statement: “We want to meet consumers where they are, and they are shopping on Amazon.”
In addition, analysts believe that Peloton (PTON) could still reap some of the rewards from consumers shifting back to more at home workouts. As inflation rises, customers may start to find gyms memberships expensive, as a result the boom of at home workouts, that was seen during lockdown, could in fact make a comeback.
“Peloton could stand to benefit from a long-term shift in demand for at-home workouts. For now, all eyes are on proof of the group’s path to profitability,” Lund-Yates concluded.
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