Peloton (NASDAQ:PTON) Won't Be Sold Until the Insiders Agree

By
Stjepan Kalinic
Published
February 13, 2022
NasdaqGS:PTON
Source: Shutterstock

Remarkably few companies benefited more from the 2020 turmoil as much as Peloton Interactive, Inc. ( NASDAQ: PTON ) . Their late 2019 IPO launch had almost perfect timing as society soon plunged into lockdowns that restricted many physical activities.

Yet, after a bumpy ride, the company that had a US$50b market cap at its peak is now back at the starting line. This raised many questions, especially from the activist investors.

Activists Step In

Activist investor Blackwells Capital recently published " A call for action " presentation, urging significant changes in the company. A provocative, ruthless but at times entertaining presentation of 65 pages called for a change in CEO, strategy, and also for the sale of the company.

Although Jim Foley, co-founder, and CEO, has since stepped away in favor of the experienced executive Barry McCarthy – activists still aren't satisfied with the outcome. However, looking into Mr.McCarthy's background, his experience with Spotify and Netflix makes him a strong candidate to prepare the company for a sale.

As the first cost-saving measure, the company is cutting around 2,800 jobs. Yet, looking at all the criticism around the stock, more will come.

There is plenty to choose: from running their own production, building an apparel brand, hiring too many engineers, or having their own warehouses with full-time delivery employees ... The company grew from 2,400 employees at the IPO to over 9,000 in 2021, operating a business model that can likely work with just a few hundred.

Who could acquire Peloton?

Mergers & Acquisitions are wild these days. With the recent acquisitions exceeding US$50b, Pelotons current market cap of US$11.5b, even at a hefty premium, wouldn't be near the top deal of the year.

Here are some of the options that we see have interesting synergies with Peloton.

Amazon (NASDAQ: AMZN) Obviously logistics system would be a big win here, but with Peloton being an AWS customer, it goes way beyond that. At this point, it is questionable whether the 2.5 million subscribers would add to Amazon Prime numbers given the cross-membership. However, an integration would give Amazon a valuable hardware brand and a lot of medical data they have been gunning for with the Halo wristband.

Meta (NASDAQ: FB) Given the latest developments, it is evident that Meta needs a turnaround story. With the Oculus acquisition, the company is already operating deep in the hardware space, as is necessary for virtual reality. With Peloton, the company would take the next step and get a front-row position for the ultimate virtual reality exercise experience. Running a clean balance sheet and with a cash hoard of almost US$50b, Meta can easily carry the cost of this acquisition.

Nike (NYSE: NKE) Nike's hardware experiments haven't been fruitful in the past, but the company still holds patents for fitness equipment. While acquiring Peloton would get Nike a base of over 3 million subscribers, it would produce strong synergies in the apparel segment. Yet, cash burn and safety controversies might be too much for Nike at the moment.

Apple (NASDAQ: AAPL) Besides the apparent brand synergies, Apple would gain a lot of data for their Health app with the Peloton acquisition. While Peloton would benefit from Apple's superb network, it is questionable whether Apple thinks the acquisition is worth it. They could easily expand into the exercise segment on their own and have a clean start.

Netflix (NASDAQ: NFLX) Where there are screens, there can be Netflix. Like the Meta story, Netflix is yet another tech company that needs a turnaround. While it doesn't have a balance sheet as strong as the previously mentioned company, a merger wouldn't be out of the question. It would be an unusual one, but it wouldn't be impossible given that Peloton's new CEO is a former CFO of Netflix.

Conclusion

While John Foley stepped down as a CEO, we have to note that he, along with the company insiders, still holds 60% of the voting stock due to the shareholder voting structure. Class B shares (that they own) get 20 votes compared to 1 vote for class A shares issued to other investors.

Thus, even with the activists scoring a small victory, it will be hard to achieve all their goals. As previously seen with Alphabet or Meta, the dual-class voting structure can be a significant hurdle to overcome. For investors, the arrival of Barry McCarthy enhances the odds of the eventual acquisition, but overall, Peloton remains a risky play where any M&A fallout could end in a disaster.

Simply Wall St analyst Stjepan Kalinic and Simply Wall St have no position in any of the companies mentioned. This article is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

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