It was only this past January when talk of putting Peloton Interactive (PTON -2.24%) up for sale began to gain traction. Activist investors were calling for the connected fitness-equipment company to fire its CEO and sell the company. Amazon (NASDAQ: AMZN) was reportedly interested in making an offer, and Peloton itself was rumored to be selling at least a small stake in the business to inject some cash as sales cratered.
Yet there didn't seem to be much of a chance of any of that happening. Founder John Foley held a supermajority of voting stock in the business, and he was not likely to sell the company he created, even after stepping down from the CEO role. Moreover, his replacement, Barry McCarthy, said he wasn't coming out of retirement to run a business only to see it get sold off.
Eight months later, though, and it's a much different situation. Peloton might be thinking now is the time to put itself on the market.
Image source: Peloton Interactive.
Recycling an old idea
It's actually not a great time to consider a sale. The stock market is tumbling, an official declaration of a recession could be imminent, and Peloton's stock has lost three quarters of its value from where it began the year.
With shares down over 95% from the all-time high hit back in January 2021, any premium investors might get would be paltry in comparison and a cold comfort to what could have been. But with rival Nautilus (NYSE: NLS) just announcing it was undergoing a strategic review of its business, Peloton might feel there is market appetite for connected-fitness companies.
Peloton has certainly cleared the decks to consider the possibility. While Foley still owns his controlling shares, he resigned as executive chairman of the fitness company, and fellow co-founder Hisao Kushi has also exited the company.
CEO McCarthy has declared Peloton is no longer on life support, and the price cuts he initiated earlier this year have been reversed. He's raised them to a level above where they were previously. Peloton also just introduced another high-priced piece of equipment, the Row rowing machine, that starts at just under $3,200.
McCarthy has also intimated he might not be around much longer, having told a Goldman Sachs conference his goal has been to stabilize Peloton after which he would resume retirement.
Slow out of the gate
Since it's likely a buyer's market at the moment, a matchup between Peloton and Nautilus would offer a compelling choice to make, considering how they stack up.
|
Peloton Interactive |
Nautilus |
|
|---|---|---|
|
Market Cap |
$2.8 billion |
$55.6 million |
|
Recent Stock Price |
$7.05 |
$1.68 |
|
Revenue |
$3.6 billion |
$460 million |
|
Price-to-Sales |
0.78 |
0.12 |
|
Operating Profits (TTM) |
($1.6 billion) |
($67.4 million) |
|
Connected Fitness Members |
2.96 million |
360,000 |
Data source: Company SEC filings. Chart by author. TTM = trailing 12 months.
Although Nautilus has much smaller losses than Peloton, its valuation is much cheaper by comparison, and its membership growth is expanding by leaps and bounds (up 133% last quarter compared to its rival's 27% gain). On the other hand, Peloton offers a dramatically larger subscriber base.
The problem for both seems to be connected fitness is more of a niche market than a trend.
Weak market for a declining business
Still, both companies are stressing their connected-fitness apps as the future for their companies, which is not surprising since the apps ought to provide better profit margins than the actual equipment.
Peloton is also considering licensing its connected-fitness classes so they can be used with third-party equipment. One problem, though, is Peloton actually penalizes consumers who purchase its equipment by charging them a higher price ($44 per month) for its classes than it does for those who only use the app ($12.99 per month).
Furthermore, while Peloton is the premium name in the industry, and it's once again leaning hard into its luxury brand status with the release of the very expensive Row, the market for consumers who can afford to buy one piece of high-priced equipment, let alone have the room for a second stand-alone unit, is very limited.
Peloton Interactive could very well decide now is the time to strike before the market gets any worse. But with subscriber growth slowing, churn rising, the number of fitness classes taken dramatically dropping, and no sign that its business has actually stabilized, it would be bad form for Peloton to put itself up for sale now, since that wouldn't generate the best return for shareholders.
