Latest surge shows Peloton stock’s wild ride isn’t over
After losing $42 billion in market value, Peloton’s stock jumped up with takeover talk. But is it worth chasing?
The stock of exercise bike maker Peloton is suddenly hot again, rising 19% since reports late last week that Nike (NKE) and Amazon (AMZN), were among the potential suitors for a buyout.
After a painful ride down — the stock is still off 17% in 2022 and nearly 80% in the past 12 months — some investors may be tempted to chase it in hopes it runs back up. But the risks are high.
A pandemic favorite that fell hard
Peloton (PTON) was one of the market’s favorite stocks during the stay-at-home early days of COVID, rising from below $20 in March 2020 to above $162 that December. People who wanted to train could do so at home with Peloton’s fitness equipment and subscription services.
However, similar to other “pandemic stock plays” — like Zoom (ZM) and Teladoc Health (TDOC), which saw increased usage and revenues during that time — Peloton has fallen out of favor. The main reason is the ease of the pandemic and people going back to the gym.
Last month, the company said it would temporarily halt the production of its fitness products because of waning consumer demand. Peloton had previously halted Tread+ production after a safety recall last year.
Overall, the stock is down from $120 a year ago to $24 last week. This is slightly below the IPO price of $29 in September 2019.
Still a name brand
Despite all the headwinds, the company is still a leading player in its fields, with products priced at $1,400 with a 65% market share, according to research firm M Science. Users also pau subscriptions, which undergirds the business. Peloton has reported preliminary fiscal second-quarter revenue of $1.14 billion and ended the quarter with 2.77 million subscribers.
Peloton hired management consulting group McKinsey & Co. to help the company slash costs, which could mean job cuts and store closures, according to CNBC.
Why is Amazon a potential buyer?
The latest move was spurred by multiple news stories suggesting a possible acquisition. Amazon (AMZN) already has business ties with Peloton through its logistics arm, which could help Peloton address its supply chain issues. Also, Peloton’s subscription could be integrated within Amazon Prime.
Recently, Amazon launched Halo Health and Wellness tracker. Getting access to Peloton’s user data or integrating Amazon’s band with the platform could make Amazon’s health products more valuable.
For Nike (NKE), a deal would put it into the equipment space, with many of the same synergies.
But keep in mind, neither has confirmed interest, and there may be a different deal or no deal at all.
Is it a good time to buy the stock?
If the report is true and another company buys Peloton, it could be positive for Peloton’s stock. But until this is confirmed, risks remain and any potential premium is a guess.
Buying based on that could be profitable, but it’s also risky.
Kliment Dukovski doesn’t own any stocks mentioned in the article as of the publishing date.
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