Peloton: Wall Street Journal Reports That Amazon And Others Mulling Takeover Bids

After the regular stock market close on February 4, The Wall Street Journal reported that, Inc. (NASDAQ: AMZN), and perhaps other companies, are considering proposing a deal to acquire the struggling fitness equipment manufacturer Peloton Interactive, Inc. (NASDAQ: PTON). In response, Peloton shares soared US$6.50, or 26%, to $US31.10 in after-hours trading.

The Journal cited “people familiar with the matter” in its reporting, and the details describing the potential synergies between Peloton and Amazon represent the most interesting and persuasive part of The Journal’s article. For example, Amazon’s fleet and logistics arm could assist Peloton in addressing supply chain issues. Also, Peloton’s Connected Fitness Subscriptions could potentially be bundled with Amazon Prime, a service which waives a package’s shipping costs for a user.

(On January 20, 2022, Peloton disclosed that its Connected Fitness Subscriptions totaled 2.77 million on December 31, 2021, lower than management’s November 4, 2021 guidance of 2.8 million – 2.85 million, but still noticeably up from 2.492 million on September 30, 2021.)

The reality of this situation is that, if Amazon believes the synergies between it and Peloton are significant and compelling, Amazon could afford to pay almost any premium for Peloton. After all, Amazon’s stock market capitalization, around US$1.6 trillion, is about 160 times that of Peloton even after factoring in the stock’s after-hours jump on February 4. Similarly, Amazon’s net sales in 2021 were about US$470 billion, about 115x Peloton’s.

An issue is what takeover price Peloton CEO John Foley would accept; the holdings of other Peloton investors do not really figure in this calculation as Mr. Foley and other insiders own super-voting Class B shares which allow then to control about 80% of Peloton’s voting power. Peloton shares are down about 80% from its US$155 high in December 2021.

Peloton seems likely to provide some commentary on all this by February 8. On that day, it reports earnings and takes questions from analysts on a conference call. 

Potentially one of the most interesting aspects of Peloton to Amazon (or other suitors) is its high-margin (~65% gross margin) subscription revenue which totals about US$1.02 billion for the twelve months ended September 30, 2021. The ratio of Peloton’s enterprise value to its subscription revenue only is a fairly reasonable 10x.

(in millions of US $, except for shares outstanding)FY22 Guidance2Q FY22 Prelim. Results2Q FY22 Guidance12 Months Ended1Q FY22
Revenue$4,600 $1,138 $1,150 $4,069.2 $805.2 
Operating Income    ($616.3)($359.7)
Adjusted EBITDA($450)($265)($338)($98.7)($233.7)
Operating Cash Flow  ($612.8)($61.0)
Cash/Marketable Securities $924.2 
Debt, Including Convertible Debt $1,635.0 
Shares Outstanding (Millions)  302.8
Connected Fitness Subscriptions3,400,0002,770,0002,825,0002,492,000
Connected Fitness Quarterly Workouts120,515
NOTE: FY22 guidance shows midpoint of guidance range.

If Peloton were to trade on February 7 somewhere close to its US$31.10 after-hours price on February 4 it could be an interesting speculation. The Amazon takeover speculation is an obvious positive. Another is that, as of mid-January 2022, Peloton’s short interest totaled 34.4 million shares, equivalent to a high 10.4% of shares outstanding and 12.9% of its float. 

Peloton Interactive, Inc. last traded at US$31.10 in after-hours OTC trading.

Information for this briefing was found via Edgar and the companies mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.

Leave a Reply