Written by Brenda Nakalema

Peloton to sell $1 billion in stock offering

Peloton announced plans to sell an additional $1 billion of its Class A common shares in a mad dash for …

Peloton announced plans to sell an additional $1 billion of its Class A common shares in a mad dash for cash upon the realization that the sales momentum of its products has slowed down in recent times.
Peloton Inc. is an exercise equipment and media company based in Newyork city whose main products are internet-connected stationary bicycles and treadmills that allow subscribers to participate in monthly classes through various streaming media.
The company claimed to have interested buyers of its shares, such as affiliates of Durable Capital Partners and TCV, and various accounts advised by T. Rowe Price Associate. The company expects to grant the offering’s underwriters a 30-day option to purchase up to another $150 million shares at the public offering price, less discounts and commissions.
In most cases, public companies typically use stocks offerings to take advantage of a growing share price; however, that doesn’t seem to be the case with Peloton. The company’s market value took a dive this year, and shares were down 3% in extended trading Tuesday after the news of its forecast revision, having fallen early 70% year to date. By the close of trading on Monday, shares were down 3.5% after experiencing a 52 week low of $46.70 earlier in the day.
In truth, the company’s prospects have been looking low since it announced its decision to slash expected revenue for the year by as much as $1 billion owing to weakened demand for its products and global supply chain challenges.
The other possible cause for the decrease in demand for the company’s products might be the re-opening of economies after lock-down restrictions were eased. For many, the choice between working out from home versus returning to the gym seemed like an obvious one.
“We anticipated the fiscal year 2022 would be a very challenging year to forecast, given unusual year-ago comparisons, demand uncertainty amidst re-opening of economies, and widely reported supply chain constraints and commodity cost pressures,” said Peloton Chief Executive Officer John Foley.
In light of the challenges, the company slashed its expectations for subscribers and sales to match the prevailing sentiments as expressed by John. It announced that it anticipates connected fitness subscribers to amount to between 3.5 million and 3.35 million, a noticeable reduction from the previously expected 3.63 million. It expects revenue to range between $4.4 billion and $4.8 billion, a downgrade from $5.4 billion.
The company said that the primary drivers of their revised forecast numbers are a more pronounced tapering of demand related to the re-opening of the economy and an unanticipated mix of sales of their original bike.
Despite the disappointing figures, the company has invested a lot of money into marketing, launching new products and bolstering its supply chain- a move investors worry might have been ill-timed. The company has also taken on extensive cost-cutting strategies such as scaling back hiring plans and limiting the number of brick-and-mortar retail locations it opens.
Many companies experienced the dizzying effect that the easing of lock-down restrictions had on their revenues. Peloton currently finds itself at a crossroads as it attempts to redefine its value to its customers now that more and more people are returning to everyday life.