Peloton (PTON) shares slipped lower Wednesday, but still look set to open at the highest levels since early January, as investors bet on multi-billion takeover of the fitness equipment maker following the departure of CEO John Foley.
Amazon (AMZN), Nike (NKE) and Apple (AAPL) have been pegged as possible suitors for the group, which boasts more than 6.6 million members and hosted 139 million workouts over the final three months of the year.
Takeover speculation emerged late last month when activist investors at Blackwells Capital LLC, a hedge fund managed by star investor Jason Aintabi, began pressing for immediate changes at Peloton and blaming Foley for a series of mis-steps that culminated with a CNBC report suggesting it was preparing to halt bike and treadmill production amid a 'significant' pullback in customer demand.
Speculation turned to expectation yesterday, however, when Foley opted to step down from his role as CEO, and move to the executive board, to make way for Barry McCarthy, a decision many have viewed as the first step towards an outright Peloton sale, given the 69-year-old former Spotify (SPOT) CFO's background in taking the music-sharing group public in 2018.
The group also unveiled swingeing headcount reductions that will eliminate 2,800 jobs, more than a fifth of its workforce, and confirmed the wind-down the development of a $400 million facility it had planned to build in Ohio.
"We applaud (Foley) for making the difficult decision to step back and bring in an outside perspective to help right-size the company and invest in responsible growth," said Oppenheimer analysts Jason Helfstein and Brian Nagel, who carry an "outperform" rating with a $45 price target on the stock. "Ultimately, we think Peloton is being positioned to sell, as we don't see McCarthy (member of five other boards) as a day-to-day operator."
But is that the right take?
Blackwells, which has been both frustrated by Foley's tenure and vocal about the need for an orchestrated takeover, reacted to news of McCarthy's appointment with dismay.
"Hiring a new CFO does not address any of Peloton investors’ concerns," the fund said in a statement emailed to TheStreet. "Mr. Foley has proven he is not suited to lead Peloton, whether as CEO or Executive Chair, and he should not be hand-picking directors, as he appears to have done."
Others have suggested that McCarthy's forte is more associated with tight financial and operational management than with quick 'slash-and-burn' cost cuts that make the group more attractive to potential buyers.
"Our diligence suggests he is likely more deliberate and less reactive," said Credit Suisse analyst Kaumil Gajrawala, who has a new $36 price target and a 'neutral' rating on Peloton.
"We see lower near-term likelihood of a deal (particularly given the headcount reduction)," he said. "However, as Peloton shifts to a more asset-light structure, the business may become more attractive to strategic acquirers in the future than it is today."
Whichever path is taken, however, Peloton's fundamental's remain the same: it needs to expand its margins, steady its balance sheet while customer demand wanes and pandemic-era restrictions on gyms and fitness centers lure more and more people away from at-home workouts.
In fact, Peloton said it sees revenues in the region of $950 million to $1 billion for the current quarter, well shy of Street forecasts, and negative adjusted earnings of between -$125 million and -$140 million.
For the three months ending in December, Peloton lost $266.5 million, firmly inside prior guidance of a loss of $350 million, on sales of $1.13 billion.
The results suggest a "clear pivot from growth to restructuring", according to BMO Capital Markets analyst Simeon Siegel, who carries and 'underperform rating' with a $24 price target.
"However, setting the underperformance aside & mirroring past 1.5 year's communications, management reverted to hopes of growth, suggesting a reduced workforce/spending would have no bearing on revenue opportunity," he added. "Fearing shares are yet again detached from the numbers, our concerns are growing."
Peloton shares, which are up more than 50% over the past four days, were marked 1% lower Wednesday to change hands at $36.80 each, a move that would still give the stock a change to reclaim its pre-Christmas highs.
