Peloton is having a bumpy ride, and has become a source of fascination among even those who’ve never invested or clipped in.
Driving the news: On Monday, a hedge fund with less than a 5% stake in Peloton called for CEO John Foley to be fired and for the connected fitness company to consider seeking a strategic buyer. Shares gained nearly 10% on the news, but remained down 16.2% for the year and off 80% their December 2020 peak.
- This followed reports of upcoming sales and marketing layoffs, possible retail store closures and a disputed claim that Peloton will temporarily stop producing its bikes and treadmills.
What to know: Foley isn’t going anywhere, nor will there be a sale process.
- Peloton has a dual-class stock structure and Foley hand-picked the board. Even if Foley wants out, he also has political ambitions that would be diminished by a reputation for bailing when the going got tough.
- Even the most slobbering Peloton booster would acknowledge that the share price was absurdly inflated by the pandemic heat, but subscriber churn remains very low and the company remains too bullish to hire bankers.
But, but, but: Just because Peloton isn’t seeking a buyer doesn’t mean that potential acquirers aren’t quietly reaching out to say “we’re here for you if you ever want to talk.”
So let’s run the odds, were there to be a deal:
- Apple (5-2): This has always been Peloton’s best strategic fit, in terms of both strategy and aesthetics. What other company better integrates consumer hardware and software with retail, let alone with a high-end price point? The negative is that Apple rarely makes big buys (Beats was eight years ago!) and speculation that it might be content with the Watch as its primary wellness platform.
- Google (3-1): A proclivity for acquisitions, including consumer hardware, plenty of cash and a way to fight Apple on wellness. Plus, the Peloton tablets already run on Android. On the flipside, Google has enough bruises from health efforts to flinch a bit.
- Netflix (7-1): The pairing of two companies who some investors believe have saturated their total addressable market, so as to expand that TAM. Plus, there have long been rumors that Netflix and Peloton have talked about content partnerships, so there’s an existing line of communication. Plus, a shared board member in TCV’s Jay Hoag.
- Microsoft (15-1): It’s got the manufacturing, cloud software and (sorta) retail chops, and CEO Satya Nadella loves the big M&A splash. Plus, there could be some gaming applications. But Microsoft also seems to be souring a bit on hardware, has massive integration and regulatory challenges ahead with Activision and there’s no Azure tie-in.
- Nike (50-1): Plenty of cash and a strong brand fit. But obviously would be a major leap of faith, given that Nike hasn’t moved much into connected fitness behind some pretty basic tracking devices.
- Private equity (100-1): Peloton remains unprofitable and leverage could be tough to come by. One big caveat here, though, is that Peloton is much more likely get a PIPE, so long as it details a viable use of proceeds. Let’s put PIPE odds closer to 10-1, as it has over $900 million of cash on hand.
Up next: Earnings in two weeks from today, when Foley will need to explain what’s actually happening with manufacturing and how the company plans to grow.
Go deeper: Peloton pumps its brakes