Peloton to Sell $1 Billion in Public Offering to Raise Capital

Just two weeks after reporting a very difficult first quarter of fiscal year 2022

Two weeks after reporting a $(376) million loss for the first quarter of fiscal year 2022, Peloton announced it would offer $1 billion of shares of Class A common stock under the ticker symbol PTON on the NASDAQ stock exchange. In addition, Peloton was expected to grant underwriters of the offering a 30-day option to buy another $150 million shares at the public offering price, less underwriting discounts and commissions.

In the company’s November 16, 2021 news release, the company said that entities affiliated with Durable Capital Partners LP and TCV, of which one of our directors is a co-founder and general partner, and funds and accounts advised by T. Rowe Price Associates, Inc. have expressed an interest in purchasing shares of Class A common stock in the offering.

23.9M shares at $46 per share

In a separate news release, Peloton set the public offering price of 23,913,043 shares of Peloton stock at $46 per share. As noted above, underwriters will be granted a 30-day option to buy up to 3,260,869 additional shares of Class A common stock at the $46 per share public offering price, less underwriting discounts and commissions.

The public offering is expected to close on November 18, 2021, and the net proceeds after underwriting discounts, commissions and related expenses should be about $1.07 billion.

“Peloton intends to use the net proceeds from the offering for general corporate purposes, which over time may include working capital, capital expenditures, including for the construction or expansion of facilities, and investments in and acquisitions of other companies, products, or technologies that Peloton may identify in the future,” the company said in the second news release.

Image courtesy of Peloton

Why Peloton needs more capital

In the company’s shareholder letter earlier this month, Peloton said it needed to adjust its guidance for the remainder of the year, as well as examine operating costs and better align future investments with their updated guidance.

“As discussed last quarter, we anticipated fiscal 2022 would be a very challenging year to forecast, given unusual year-ago comparisons, demand uncertainty amidst re-opening economies, and widely-reported supply chain constraints and commodity cost pressures,” said Peloton in its quarterly shareholder letter. “Although we are pleased to have delivered first quarter results that modestly exceeded our guidance, a softer than anticipated start to Q2 and challenged visibility into our near-term operating performance is leading us to recalibrate our fiscal year outlook.”

Presumably as part of this shoring up of expenses, Peloton instituted a hiring freeze in early November. According to CNBC, the hiring freeze impacts all departments, and Peloton did not say how long the hiring freeze would last.

From the stock dip following the first quarter earnings report through yesterday evening, Peloton stock has continued to be volatile, dropping nearly 42% in the past month alone. In the last year, it has dropped just over 51%. As of November 18, 2020, Peloton stock was valued at $104.49, compared to $51.13 last night.

Source: Google

Insider Take

A number of factors are at play here. First, Peloton is considered by many to be a luxury product not accessible to the average consumer. While the company lowered the price of its original bike in August, Peloton has yet to see significant results in attracting new customers. In addition, the spring recall of the company’s Tread products continues to impact the company’s revenue, expenses and margins, as does the slowing interest in high-end home workout equipment. Peloton needs to raise money to invest in research and development, innovation, and marketing to improve its outlook for the balance of fiscal year 2022. No matter how you spin it, Peloton is hurting, and the company hopes this public offering can help it reverse course.