Shares of Peloton Interactive (PTON 7.20%) went on a run yesterday, rising 15.5% after the exercise bike and treadmill maker announced it would sell $1 billion worth of stock to raise cash to help offset the mammoth $1.4 billion in cash it has burnt over the past year.
Today, though, the stock is taking a turn for the worse and giving back some of its gains, trading down 3.7% as of 11 a.m. ET.
Yesterday's run-up was a curious reaction from investors -- both to the reminder that Peloton remains a deeply and increasingly unprofitable company and to the prospect of seeing their ownership stakes in the stock diluted by the share issuance.
Today's reaction is more logical. After all, as The Wall Street Journal pointed out in an article this morning, it was just earlier this month that Peloton CFO Jill Woodworth assured investors that the company had no need to raise more cash to fund its operations. But now, just a couple weeks later, the company seems to have realized that yes, indeed, it does need more cash?
That seems a bit like a flip-flop to me.
Granted, a Peloton spokesperson assured the Journal that Peloton was right the first time, that it does not in fact need cash, and that it's only selling shares to make sure it has the cash available to pay for "the best strategic decisions for its medium and long-term growth opportunities." But the numbers tell a different story.
According to the latest data from S&P Global Market Intelligence, Peloton is currently carrying a debt load of $1.6 billion, but has only $924 million in cash on its books (i.e., the company is already in a "net debt" situation). Moreover, if Peloton keeps burning cash at the rate it's currently burning -- $1.4 billion per year -- the company would have no cash at all eight months from now.
If you ask me, that's the reason the company is raising cash today -- and it doesn't bode very well for Peloton's future.