Update (1045ET): Peloton shares are screaming higher now, up over 20% on the day and back to one-month highs, as the CEO's mea culpa, resignation, and cost-cutting plan all semed to have sparked an algo buying panic...
Could this be why?
If there is a Peloton deal, a lot of shorts will be steamrolled pic.twitter.com/K3GO5mmoyi— zerohedge (@zerohedge) February 7, 2022
PTON up $3BN from session lows because AAPL apparently can't superglue its own ipad to an exercise bike— zerohedge (@zerohedge) February 8, 2022
* * *
Update (0900ET): In response to the surprise news of Peloton's executive shift, mass layoff and capex and guidance, it didn't take long for the company's activist investor to confirm that the plunge in the stock price is not what it had in mind, and in a statement Blackwells Capital CIO Jason Aintabi said that John Foley’s plan to step down as Peloton CEO and become executive chair doesn’t address the concerns of the company’s investors,
“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 today.”
Blackwells says that it sent the board on Monday a presentation demanding it start a strategic alternatives process, and adds that on Monday it exercised its rights to review Peloton’s books and records, in a request to the company pursuant to Delaware law.
“Blackwells intends to determine whether the lack of effective oversight at the Company was the direct result of the Company’s dual-class share structure, which may have precluded independent directors from exercising their fiduciary duties to the Company’s Class A common stockholders.”
And since it now appears that Blackwells will aggressively push for a sale, PTON stock has managed to claw back much of its earlier losses.
Indeed, Wedbush said the CEO exit increases the likelihood that Peloton sells the company, while JPMorgan welcomes the appointment of an executive from Netflix and Spotify with experience in subscription businesses. Here are some kneejerk responses:
Wedbush, Daniel Ives
- Expects the departure of Foley makes it more likely that Peloton sells the company
- If a bidding process begins, Ives views Apple as the likely purchaser, given the strategic fit with its health care, fitness and subscription initiatives, while Amazon and Nike could also be potential bidders
JPMorgan, Doug Anmuth
- “Barry McCarthy as new CEO will be well received by the Street, and prove positive for the shares both near and long-term”
- Notes McCarthy is a “known entity” to investors and has “significant experience” with content-driven subscription businesses after working at both Netflix and Spotify
- Rates PTON overweight with PT $50
BMO Capital Markets, Simeon Siegel
- Says Peloton is making “hard but healthy” choices to reset the business
- However, “healthy decisions for the company do not necessarily equate to bullish drivers for the stock’s near to mid-term”
- Rates PTON underperform with PT $24
The full Blackwells letter to Peloton is below:
* * *
Peloton Chief Executive Officer John Foley will step down and become executive chair in a victory for activist investor Blackwells Capital which had campaigned for his departure and in a loss for all those who were hoping the company would quickly sell itself to Amazon, Nike or some other potential acquiror.
As the WSJ first reported, Barry McCarthy, former CEO at Spotify, will become CEO and president, Peloton said in a statement Tuesday. Peloton also said about 2,800 global jobs would be cut, affecting around 20% of corporate positions as part of its dismal earnings release posted earlier today.
Oh, and in its early earnings release the company also cut revenue guidance again (which it cut just a few weeks ago) for the full year, with the guidance missed the average analyst estimate.
Now sees revenue $3.7 billion to $3.8 billion, saw $4.4 billion to $4.8 billion, estimate $4.24 billion (range $3.64 billion to $4.65 billion)
Sees adjusted Ebitda loss $625 million to $675 million, saw loss $425 million to loss $475 million, estimate loss $524.5 million
Sees connected fitness subscribers 3 million, saw 3.35 million to 3.45 million, estimate 3.2 million
In order to position itself for sustainable growth - which again means no immediate sale - the company is reducing its owned and operated warehouses and delivery teams, although Peloton’s roster of instructors and "breadth and depth of its content" will not be impacted by the initiatives. The company will also reduce its planned capital expenditures in 2022 by approximately $150 million. The restructuring program is expected to result in approximately $130 million in cash charges related to severance as well as other exit and restructuring activities and $80 million in non-cash charges. In short, not only does Peloton not signal a sale, but it hopes to transform itself into a much slower growing (if at all) company.
Peloton’s shares plunged as much as 15% to $25.5 on the news as an immediate sale now appears unlikely; PTON jumped 31% on Monday after weekend reports that it’s exploring takeover options. The company's stock has tumbled more than 80% from their all-time high a year ago, as the gradual easing of Covid-era restrictions fueled concern that growth of the stay-home fitness company will slow.
Still, Foley’s departure may not be enough for Blackwells, which has a stake of less than 5% - and which just lost tens of millions of dollars on the news - and has also called for Peloton to explore a sale of the business. It has decried the CEO’s leadership, citing failed forecasting, inconsistent strategy, and governance problems such as a lack of financial controls.
Blackwells published a presentation on Monday calling for the resignation of Chief Financial Officer Jill Woodworth and renewing demands for an immediate sale of the company. Blackwells said the company could fetch $75 a share in a sale to a strategic buyer such as Netflix Inc. or Spotify.
Outgoing CEO Foley, a former Barnes & Noble Inc. e-commerce executive and cycling enthusiast, founded the company after posting a video to Kickstarter in 2013. At the of the end of last week, Peloton was valued at just over $8 billion, based on Friday’s official market close of $24.60 a share. That’s below its September 2019 initial public offering price of $29 a share.