Peloton receives $ 1.07 billion in discounted stock sales

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Cari Gundee rides her Peloton exercise bike at home in San Anselmo, California on April 6, 2020.

Ezra Shaw | Getty Images

Peloton shares rose Tuesday, even after the company announced it would raise $ 1.07 billion through a new stock offering that prices its shares at a discount to their current trading price.

Notably, the offering of 23.9 million shares at $ 46 each came just weeks after Peloton said it had no reason to raise additional funds.

In its announcement on Tuesday, the connected fitness equipment maker said the proceeds will be used for general corporate purposes, including building or expanding facilities, acquisitions, and investing in new products and technologies.

The decision to raise funds comes as Peloton is experiencing declining momentum for its products. Stock offers are often made by public companies to take advantage of a rising stock price, but Peloton’s market value has declined this year. The share price has fallen by around 66% since the beginning of the year.

Peloton shares initially fell 7% in pre-trading hours on Tuesday, but recently rose more than 12%. The stock closed down 3.5% on Monday at $ 47.49 – slightly above the public offering price – after hitting a 52-week low of $ 46.70 earlier in the day.

Simeon Siegel, an analyst for BMO Capital Markets, told clients he saw no end to Peloton’s cash burn and also expressed concerns about management’s sudden turnaround in cash-raising plans.

“One has to wonder whether lowering the guidelines shortly after they were introduced and raising capital shortly after they were not required is more of a trend than an isolated incident,” Siegel said in an interview.

When the company reported an unexpectedly heavy first quarter loss earlier this month, it also cut its outlook for annual sales by as much as $ 1 billion.

Peloton has invested money in marketing, launched new products and strengthened its supply chain. However, with consumers cooling off with fitness at home, analysts and investors fear that these investments may have come at an inopportune time. It has also put on a temporary hiring freeze to try to cover the expenses.

Peloton expects the stock offering to end on Thursday. Affiliates of Durable Capital Partners and TCV and accounts advised by T. Rowe Price Associates have expressed an interest in buying shares, Peloton said.

The company plans to give the underwriters of the offering a 30-day option to purchase up to an additional $ 150 million in shares, or approximately 3.3 million Class A shares, at the public offering price, less rebates and commissions.

The full Peloton press release can be found here.

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