Connected exercise equipment company Peloton Interactive saw its shares soar by about 13% within hours of announcing a $1 billion secondary stock offering on Tuesday morning.
Regardless of the stock market’s excitement over Peloton’s equity offering, risks remain high for the online workout provider, and it will still need to take strong steps to secure a turnaround.
The so-called “great reopening”, when the period of COVID-19 lockdowns and enforced business shutdowns largely ended, switched Peloton over from its pandemic-driven upward trajectory to a declining one.
In another recent development, Peloton launched wide-ranging lawsuits against two of its competitors on Monday.
The lawsuit alleges that iFit “attempted to free-ride off Peloton’s innovative technology” through the use of its own leaderboard technology, involved in-home streaming and online live workouts, which it uses in at least 55 products.
Peloton’s assorted troubles sent its stock value sliding from around $114 per share in early September to around $86 in early November, right before its fiscal Q1 earnings report.
They will sell at $46 per share, and the offering is expected to bring in around $1.07 billion to be used for “general corporate purposes.” The offering includes an optional 3.21 million additional shares that underwriters can purchase, and is scheduled to close Thursday.
Given that the secondary offering equates to about 8% of Peloton’s total market cap at the time of the announcement, the sale will meaningfully dilute current stockholders.
One possible factor was described by Baird analyst Jonathan Komp, who now predicts that the stock is unlikely to fall below a floor of $50 a share.
According to Peloton’s news release, those who will be buying the newly minted shares include “entities affiliated with Durable Capital Partners LP and TCV, and funds and accounts advised by T.
Large firms with reputations to protect — as well as in-depth analysis and high-quality information gathering — have enough faith in Peloton’s future to buy up more than $1 billion worth of new shares.
While the company is still clearly struggling with the headwinds generated by the resurgence of physical gyms and a possible waning of interest in at-home connected exercise platforms, in the wake of this stock sale, Peloton looks like it’s at least neutral again, and worth watching.