Although Peloton Interactive (PTON 9.43%) could be clearing the decks in advance of a sale of the company as its CEO stepped down, the connected fitness equipment maker's dual-class stock structure may not make that easy.
Wall Street, though, continued to spin scenarios of some tech stock or fitness company takeover, which heartened investors who sent Peloton's stock soaring 25% despite a still-dismal earnings report.
Image source: Getty Images.
Business is stagnating
Triple-digit revenue gains are clearly a thing of the past for Peloton. It reported a 6% increase in sales to $1.13 billion, which was below consensus estimates of $1.18 billion, while recording a loss of $1.39 per share, worse than the $1.20 per share loss analysts anticipated as well as the $0.18 per share profit it made a year ago. (Corporate Event Data provided by Wall Street Horizon.)
That led Peloton to cut its guidance for the full year to $3.7 billion to $3.8 billion from its prior forecast of $4.8 billion. It will also be firing 2,800 people globally, 20% of whom will be in its corporate offices.
Peloton also forecast 2022 earnings before interest, taxes, depreciation, and amortization (EBITDA) would come in at a loss of $625 million to $675 million, where analysts had projected a $463 million loss.
Equally revealing is that while connected fitness subscriptions grew to 2.7 million, average monthly workouts continued to fall and were down to 15.5 from 26.1 last year. Peloton now expects to have 3 million connected fitness subscribers in 2022, down from its previous estimate of as many as 3.45 million.
Image source: Peloton Interactive.
Still walking in lockstep
Yet the C-suite shakeup was of greater interest to the market as analysts fantasized about Amazon.com (AMZN 0.81%), Apple (AAPL 5.98%), or Nike (NKE -0.28%) putting in bids to buy the company.
CEO John Foley announced he was stepping down from his position and would become executive chairman, while former CFO at Netflix (NFLX 2.51%) and Spotify (SPOT 0.65%) Barry McCarthy would take over the CEO spot. The management shuffle was seen as a way to make the company more attractive to acquirers, but not everyone was sold.
Blackwells Capital, which owns almost 5% of Peloton stock and has been calling for Foley to step down and the company to put itself up for sale, said the fitness equipment company was basically rearranging the deck chairs on the Titanic.
The hedge fund blasted Peloton for not making a clean break with Foley, claiming he has shown himself incompetent in leading a company and should not be elevated to chairman. It also said he should not have had a hand in selecting his successor as was apparently the case, and the board of directors remains beholden to Foley and needs to be overhauled as well.
Blackwells also wants Peloton to open its books for examination to see if the fitness guru's dual stock structure caused a lack of oversight by the board.
Image source: Getty Images.
A controlling interest
Foley owns a supermajority of Peloton's class B stock, some 17 million shares or almost 42% of the total, while the 10 directors own a combined 19 million shares. Because class B shares have a 20-to-1 voting ratio over the class A shares, or almost 83% of the total voting power, it's mostly Foley (but also much of the board that he installed) who ultimately decides the fate of Peloton and whether it should be sold.
That's why investors shouldn't get too excited yet that Peloton will be sold anytime soon. Foley isn't likely ready to sell his company just yet and the installation of a new CEO, while possibly helpful, is not a guarantee the business will recover.
Peloton benefited from a unique set of circumstances during the pandemic that hopefully won't ever be repeated. Now it has to compete for consumer attention from out-of-home exercise and entertainment activities that a locked-down populace didn't have. With gyms now reopened and outdoor venues available, sweating in your living room just might not seem as attractive.
Pressure from Blackwells Capital and other institutional investors could lead Foley to abdicate control or relent and allow a company sale to go through, but until then it's all speculation. In the meantime, investors should not get their hopes up for a quick sale or recovery. This is probably as good as it gets.
