What Is Peloton Worth?

As people return to gyms or give up - as they usually do - on optimistic plans for getting in better shape, Peloton's sales have dropped. 

The company's situation is sufficiently precarious that various acquirers are being actively mentioned, included Nike and Amazon. The question is what they might be willing to pay for a damaged brand. And the answer is: still a fair amount. JL 

Andrew Ross Sorkin reports in DealBook:

Peloton's sales have slowed as people return to gyms. The company announced plans to cut 20% of its work force, 2,800 jobs. It lost $439 million in its most recent quarter, and lowered its full-year forecasts for revenue, subscriptions and profitability. (Investors) list a dozen possible buyers of the business, which could pay $75 per share, over 150% of Peloton’s current market cap of $10 billion. (But) Nike doesn’t have a great track record of takeovers; Alphabet faces antitrust scrutiny (see: Fitbit);  Amazon may not care enough about the size of Peloton’s market; and private equity  buyers want a clearer path to profitability, 'not a fixer-upper.'

Where is Peloton headed? As its fortunes have waned, the once high-flying maker of connected fitness bikes faces pressure from activist investors to cut costs and frenzied speculation on Wall Street that it may need to sell itself.

In the latest twist, the company announced today that its co-founder and C.E.O. John Foley — the target of some activists’ ire — is stepping down and will become executive chairman. Peloton’s new chief will be Barry McCarthy, the former C.F.O. of Spotify and Netflix. On top of that, Peloton announced plans to cut about 20 percent of its corporate work force, or some 2,800 jobs. Separately, the company said it lost $439 million in its most recent quarter, and lowered its full-year forecasts for revenue, subscriptions and profitability.

“We are open to exploring any opportunity that could create value for Peloton shareholders,” Foley told The Wall Street Journal. Peloton’s combination of hardware and subscription-based businesses makes it potentially attractive to a range of potential buyers, from Amazon to Apple, Nike and others. As its share price swings — up yesterday on M.&A. speculation, down today on the restructuring news and way, way down from its pandemic peak a year ago — it raises a key question: What is Peloton really worth.

 

Activists are bullish about a deal. Blackwells Capital, which has been calling for an overhaul at Peloton in recent weeks, said this morning that the moves “do not address any of Peloton investors’ concerns,” which it recently spelled out in a 65-slide presentation. It accuses Foley and the board of mismanagement and lists more than a dozen possible buyers of the business, which it says could pay $75 per share and still make money, according to “myriad valuation metrics.” That’s well over 150 percent of Peloton’s current market cap of around $10 billion.

 

Others aren’t so sure. Peloton’s sales have slowed as people return to gyms, and the planned layoffs reflect that the company may need to cut costs after expanding rapidly earlier in the pandemic. Of the companies that could consider acquiring Peloton, market watchers we’ve spoken to have doubts: Lululemon’s acquisition of Mirror hasn’t gone well; Nike doesn’t have a great track record of takeovers and is focused on its own brand; Alphabet faces tough antitrust scrutiny (see: Fitbit); Amazon may not care enough about the size of Peloton’s market; and private equity buyers would want a clearer path to profitability.

Or, put another way, “the largest companies in the world want to buy a growth story, not a fixer upper,” Simeon Siegel, an analyst who covers the company for BMO Capital Markets, told DealBook.

All eyes are now on Foley. His new job does not change the fact that he and other insiders control a majority of Peloton’s shares, and thus will decide on a potential sale. He is sure to face questions about Peloton’s path as an independent company during its earnings call