Peloton sells $1 billion worth of shares, reverses sell-off

Peloton sells shares for the first time since its 2019 IPO. Yahoo Finance's Emily McCormick reports on how the stock is reacting.

Video transcript

ALEXIS CHRISTOFOROUS: Peloton is losing momentum for its pricey fitness equipment, and it's happening during the worst time-- the crucial holiday shopping season. To raise money, Peloton is planning a big stock sale. And here with all those details is Yahoo Finance's Emily McCormick. Emily.

EMILY MCCORMICK: Well, Alexis, we're taking a look here at shares of Peloton surging after the company said it's conducting a secondary stock offering. Now, for the details on this, this was priced at 46% share or below current share price levels, and about 23.9 million shares are set to be sold in this offering. Now, this is expected to net Peloton about $1.07 billion from the offering.

And we should note that this is the first time that we've seen Peloton do a secondary share sale since its 2019 IPO, which had been priced at $29 per share at that time. Now, this is also interesting timing, we should note, as well for Peloton, given that the stock price has fallen by nearly 50% from the start of November through yesterday's close.

That was coming after some disappointing fiscal first quarter results and guidance, really pointing to some slowing momentum and demand for its connected fitness devices here. So it is possible that Peloton believes people were willing to buy the dip here in these shares. Of course, the secondary offering is being priced at a discount to current share price levels here.

But in terms of also why, perhaps, Peloton may be needing these funds, in interesting detail that I do want to highlight from their first quarter earnings results was that the company did see its cash pile shrink pretty considerably from the quarter prior. Now, specifically, Peloton had ended the quarter with about $924 million in cash, and equivalents, and marketable securities, which was a major step down from about $1.6 billion in cash equivalents and marketable securities that it had in the fourth quarter here.

now I do want to highlight as well that on Peloton earnings call, Chief Financial Officer Jill Woodworth had said at the time that the company didn't see any additional capital raise needed based on their current outlook. But in a statement about today's announcement with the secondary offering, Peloton did say in a statement to media outlets, quote, "we see an opportunity to expand our liquidity position to ensure we are making the best strategic decisions for Peloton's medium and long-term growth opportunity."

So again, guys, they are framing this offering as potentially a good move here towards their longer term strategy, trying to bolster up their balance sheet here with some cash. But it does seem like the stock price, at least today, is moving up on the heels of this announcement, guys.

- Yeah, Emily--

[INTERPOSING VOICES]

- I'm sorry.

ALEXIS CHRISTOFOROUS: Go ahead. Go ahead, Karina.

- I was just going to say, it's clear they have to do something and make this move, because, as you say, the stock is down more than 40% over the last two weeks after that really, really dismal quarterly earnings report. But I wanted to ask you, what are the companies saying as far as subscribers and top line sales?

EMILY MCCORMICK: Absolutely, Karina, that's a really good point here, because, again, one of the things that had really spooked Wall Street and catalyzed that share price decline over the past couple of weeks had been this disappointing outlook here. Now, the company said that it expected sales to come in at as much as $4.8 billion on the high end for the full fiscal year.

And just a couple of months ago, it had been predicting full-year sales of as much as $5.4 billion. So again, a big decrease there on what Peloton is actually forecasting in terms of demand and how much consumers are actually going to be buying these connected fitness devices. Now, subscriber growth also slowing considerably. At best, Peloton expects to have about $3.45 million connected fitness subscribers. And previously, it had called for more than $3.6 million-- so seeing quite a bit of slowing momentum here for Peloton, really contributing to the decline over the past couple of weeks in the stock, although we are seeing a little bit of a respite today, guys.

ALEXIS CHRISTOFOROUS: And, Emily, real quick-- what kind of promotions are they offering right now? I mean, because they're losing a little bit of momentum, can people get a good deal on a Peloton bike for the holidays?

EMILY MCCORMICK: It's a good question, Alexis. And we know that during the fiscal first quarter, the company had been slashing their prices, especially for the entry level products here. We'll have to wait and see exactly what these discounts look like heading into the holiday season. We've been talking to a lot of retail analysts who said perhaps don't expect retailers as a whole to be cutting their discounts as much, given some of these supply chain disruptions, but definitely something to watch in this current quarter as well.

ALEXIS CHRISTOFOROUS: We'll be watching. Emily McCormick, we appreciate it. Thank you.