Shares of Peloton shot up about 20 percent on Monday after the arrival Friday night of takeover rumors. While Peloton is not formally for sale, potential suitors have grown to include Nike, Amazon, Apple, Google, Netflix, Microsoft, and Google. Analysts were mixed on a possible deal.
Shares closed Monday at $29.75, up $5.15, or 20.9 percent, after climbing as high as $32.22 as trading got underway Monday morning.
To date, reports have named Amazon and Nike as interested buyers, although the talks are preliminary and Peloton has yet to announce a formal sale process, a source told CNBC.
The takeover talks come as Peloton’s stock fell more than 80 percent from a high a year ago and as the gradual easing of pandemic restrictions fueled concerns that its growth could slow.
At the end of last week, Peloton was valued at just over $8 billion, based on Friday’s close of $24.60, below its September 2019 IPO offering price of $29 a share.
The company’s shares are now trading at 1.7 times forward sales compared to 10.5 times in January 2021. Shares are also cheaper than the Nasdaq 100 Index’s 4.5 times value.
The takeover talks also come after Activist Investor Blackwells Capital, LLC, on January 23, issued a letter demanding the company fire its Co-founder and CEO John Foley and pursue a sale. Blackwells, which owns less than 5 percent of the company, said that potential buyers could include Apple, Inc., Walt Disney, and Nike in the same letter.
On Friday, the Wall Street Journal reported that Amazon.com, Inc. had been speaking to advisers about a potential deal. The Financial Times also reported that Nike, Inc. is, too, considering a bid for Peloton.
Although Wall Street has lost faith in Peloton’s future over the past year, the company’s finances are not in dire straits.
When the company reported preliminary earnings almost three weeks ahead of schedule on January 20, it reported revenues of $1.14 billion, in line with guidance of between $1.1 billion and $1.2 billion. Monthly churn, the number of subscribers leaving Peloton each month, was below targets but was still 0.79 percent, suggesting members remained enthusiastic about Peloton.
The WSJ noted that Peloton, overall, could be attractive for a company to better tap the booming health-tech field and for the opportunity to gain access to its 28.8 million subscribers and its data.
“Despite its woes, linking up with Peloton would give Amazon, or another party, access to its millions of well-heeled users and their data and a big boost in the burgeoning market for health and wellness technology,” said the WSJ.
For Amazon, a Peloton purchase could accelerate its ambitions in healthcare and wellness by tapping insights from its members. In 2020, Amazon introduced its wearable Halo products to compete with Google-owned Fitbit and other fitness devices. The WSJ also said Amazon could help ease Peloton’s logistics challenges while Peloton subscriptions could be bundled with Prime or Alexa.
Sources told The Financial Times that Nike’s interest is tied to the sharp decline in Peloton’s share price. Two sources told the media outlet that Nike had considered a bid for Peloton before it went public in 2019 but decided not to move forward with an offer. Nike exited its Fuelband wearable hardware efforts in 2014, but a Peloton acquisition could fit with the brand’s data-led “digital transformation” guided by John Donahoe, Nike’s CEO.
Said Donahoe on Nike’s December quarterly call, “We are in an era where the liquid gold for any brand is to have a direct connection with the consumer so that you can understand that consumer, you can engage that consumer and then you can serve them in a personalized way. And if you have a leadership position, you have more information with which to do all that, including more data and more information. And, so, our digital penetration is at an all-time high.”
Another potential suitor is Apple.
In a note to clients that came out Sunday, Wedbush analyst Dan Ives said it would “make strategic sense” for Apple to acquire Peloton, believing it could accelerate its ambitious health and fitness initiatives over the coming years.
“With media reports swirling that Peloton could be up for sale with Amazon and Nike potential suitors, we would be shocked if Apple is not aggressively involved in this potential deal process,” Ives wrote.
The growth in the fitness brand market has prompted tech giants such as Apple, Inc. and Samsung to introduce features for health tracking, including electrocardiograms and blood pressure sensors. Alphabet, Inc.-owned Google closed its acquisition of fitness tracking company Fitbit, Inc. in January 2022, and Apple could follow a similar path with a Peloton acquisition.
Ives added, “On the offensive front, Apple, through its Fitness+ subscription service and Apple Watch strategy, would be able to leverage the Peloton services and flywheel to significantly bulk up its healthcare initiatives, which have been a key strategic linchpin for Cook,”
Based on the timing and competitive process, Ives and his team estimate a Peloton acquisition could go off in the $12 billion to $15 billion range.
Axios also cited Google, Netflix and Microsoft as potential suitors. However, many analysts are mixed on the potential merger.
Wedbush analyst Tom Nikic said Nike’s rationale to acquire Peloton is not clear cut.
“The Peloton brand might not be as strong as it used to be,” said Nikic, but he cited recent unfavorable portrayals of the Peloton name in two popular TV shows, as well as a massive treadmill recall in Spring 2021 following the death of a six-year-old boy, that Foley initially pushed back against as examples. He added that a deal with Peloton could detract Nike from its core sneaker and apparel business.
Cowen & Co. analyst John Blackledge believes a deal is unlikely for Peloton, given that the company is still in the “early innings” of growth in the global fitness industry.
In a research note, Blackledge drew a parallel between Peloton and Netflix in 2012, during the early days of video-streaming services. At the time, activist investor Carl Icahn targeted the tech company and said there would be strategic value if Netflix combined with a larger business. But that never came to fruition.
Others said they expected Peloton to weigh down any business to acquire it. After seeing surging demand in the early stages of the pandemic, Peloton is looking for areas to cut costs, including layoffs, and is resetting production levels to realign its supply with more tempered demand. As a result, it could be difficult for a buyer to gauge the actual need for its products.
BMO Capital Markets analyst Simeon Siegel is skeptical of the value that Peloton would bring to any major tech giant or Nike, “given its comparably small size, faltering demand and declining engagement.”
He added in a note, “Although Peloton’s star was propelled during COVID, it’s become increasingly clear it’s a much smaller (still impressive) business than prior perception. As such, one has to ask whether the brand is simply too small to make a difference to the world’s largest companies.”
For Amazon, Siegel said a Peloton purchase would amount to a “fixer-upper” for a corporation such as Amazon, and many of Peloton’s current fitness subscribers likely overlap with existing Amazon Prime customers. He did note that offering a Peloton subscription to Amazon Prime subscribers could offer some value.
“A company is worth what someone’s willing to pay for it,” Siegel said. “If a mega-cap decides to pay up for Peloton, that’s all that matters. However, until that happens, we question whether it would make sense.”
Another hurdle could be heightened regulatory scrutiny over mergers that have arrived with the new administration, as well as the consent of Foley. According to a proxy filing, Foley and other insiders have Class B voting shares, which give them control over 80 percent of Peloton’s voting power as of September 30.
Baird analyst Jonathan Komp believes Foley likely won’t be willing to s
sell unless there is enough internal pressure stemming from Peloton’s recent stock sell-off. Foley’s management team has had “unwavering confidence” in its ability to achieve its longer-term goals as a stand-alone business, Komp wrote in a note.
Peloton is scheduled to report its fiscal second-quarter financial results after the market closes on Tuesday.
Photos courtesy Peloton
