Peloton has been battered and beaten down so much so in recent months that the connected fitness company is now attracting interest from outsiders.
Shares of Peloton surged more than 30% in extended trading Friday after The Wall Street Journal reported e-commerce giant Amazon has approached the company about a potential deal. Other potential suitors are circling, the Journal said, but no deal is imminent and there may not be one at all.
Peloton is not yet running a formal sales process, but there is real interest in the company, a person familiar with the talks told CNBC.
Representatives from Peloton and Nike didn’t immediately respond to CNBC’s request for comment. Amazon declined to comment.
The potential interest from outsiders comes as Peloton shares have tumbled in recent months and activist group Blackwells Capital, which has a less than 5% stake, has urged the company publicly to consider a sale. In its letter to Peloton’s board, which also called for Chief Executive John Foley to be fired, Blackwells speculated that potential buyers could include Apple or Nike.
Peloton’s market cap of roughly $8 billion has fallen from a high of nearly $50 billion about a year ago. Investors poured into the stock after the onset of the Covid pandemic, sending shares up more than 440% in 2020. But they’ve started to flee as many realize that future growth will come at a much higher cost. Shares closed Friday at $24.60, well below its IPO price of $29.
Peloton could be an attractive target, given the selloff, for any company looking to further its ties to the health and wellness industry. Amazon has been investing in connected health for years, including by launching a Halo Health and Wellness tracker. And last year, Amazon added interactive home video workouts and guided meal planning to Halo subscriptions.
It’s not immediately clear what Amazon would do with Peloton’s hardware and technology, but it’s possible Amazon could integrate Peloton’s offerings into its growing devices unit, which houses its popular Fire TV streaming sticks, voice-activated Echo smart speakers and an expansive lineup of connected home products.
Peloton’s original Bike, which costs $1,745 including shipping, would become the most expensive hardware Amazon sells, aside from its $999 Astro home robot. Peloton’s Bike+ is even more costly, at $2,495. Its Tread retails for $2,845.
According to the Journal, Amazon’s existing businesses, such as its logistics arm, could also further help Peloton address ongoing supply chain issues. A monthly Peloton subscription, which is $39 for people who own one of its connected devices, could also theoretically be bundled into Amazon’s Prime membership, it said.
Peloton is set to report fiscal second-quarter results on Tuesday, after the market close, and all eyes will be on its full-year outlook. Peloton last week preannounced a handful of second-quarter metrics, including revenue, which is expected to be within its expected range, and connected subscribers, which came up short of its own estimates.
Back in November, Peloton slashed its fiscal 2022 forecast as it reported slowing revenue and waning subscriber growth. Foley warned at the time that it was becoming more difficult for Peloton to project growth, as it lapped massive pandemic gains.
Through 2020 and into 2021, Peloton invested heavily to ramp up its supply. It hired thousands of more employees to help with customer service requests and home deliveries. But that has left the company with a bloated cost structure.
Foley said in a statement in late January that Peloton is “taking significant corrective actions to improve our profitability outlook and optimize our costs.”
In a separate memo to employees, which was shared publicly, the CEO wrote: “We’ve found ourselves in the middle of a once-in-a-hundred year event with the COVID-19 pandemic, and what we anticipated would happen over the course of three years happened in months during 2020, and into 2021.”
Some analysts have argued that the selloff in Peloton shares has resulted in the market undervaluing the company’s existing base of connected fitness subscribers. Peloton counted about 2.5 million at the end of its first quarter. Its entire member base, which includes digital-only subscribers, totaled 6.2 million. These could be valuable assets for any potential suitors.
In a note to clients dated Jan. 20, Loop Capital Markets said that Peloton’s subscription business alone could be worth “substantially more” than the company’s current market value.
Analyst Daniel Adam said that assuming the most recent count of 2.5 million connected fitness subscribers, the business could be worth as much as $80 per share. He added that this valuation makes Peloton more comparable to Netflix.
To be sure, in order for any deal to go through, Foley must be in agreement. The CEO along with other insiders have shares giving them control of more than 80% of Peloton’s voting power.
Amazon has made several large, notable acquisitions in recent years. Amazon purchased upscale grocer Whole Foods for $13.7 billion in 2017, its biggest deal by far. Last May, it inked a deal to acquire MGM Studios for $8.45 billion.