Shares in connected fitness kit company Peloton jumped more than 15% after announcing plans to raise $1 billion of new funding, yet investors have seen those stock gains erased over the days since. The stock closed last week at $47.14.
Peloton unveiled its cash call on 16 November, pricing the placing at $46 per share, or a discount of about 3% on the $47.49 share price. By the end of the day the stock had closed at $54.85. The rough 23.9 million new shares represented about 8% of the company’s existing shares in issue and $14.9 billion market valuation.
The new cash will be used for general use, so in other words, give it the financial clout to diversify its connected bikes and treadmills products portfolio into new products and subscription services.
SLOWING GROWTH
This will not be easy, and investors are growing increasing wary of Peloton’s slowing growth, rising costs and seemingly endless run of red ink.
One of the great lockdown winners that sent the stock to a record $162.72 in December 2020, Peloton’s oomph started to run out this year. The fourth quarter (Q4) to 30 June 2021 saw the company announce revenue growth of 54% to $937 million and 114% connected fitness subscriber growth to 2.3 million. Yet earnings per share, or losses, missed forecasts by a wide margin, reporting $0.56 loss per share versus negative $0.32 expected.
This was the first time quarterly numbers were drawn against lockdown comparatives, and the prognosis was not good. Fast forward to Q1 2022 announced on 4 November and Peloton posted just 6% year-on-year revenue growth at $805 million, the first quarter-on-quarter growth reverse since Q3 2019.
Connected fitness kit sales fell 17% to $501 million due to fewer bike deliveries, bike price cuts and virtually no treadmill sales because of product recalls following a customer’s unfortunate accident.
INVESTOR PATIENCE TESTED
At the same time operating costs jumped 140% to 77% of revenues, a rise from 56% of revenues in the previous quarter. On top of that, the management slashed growth guidance, cutting full year 2022 steer from $5.4 billion to a range of $4.4 billion to $4.8 billion and subscriber growth from 3.63 million to 3.35 million. The company also lowered gross profit margin and adjusted earnings before interest, tax, depreciation and amortisation estimates.
Investors may have been willing to forgive a run of losses while Peloton’s growth in revenues and subscribers was hot. That is no longer the case and the share price has fallen accordingly.
