Why This Activist Peloton Investor Wants The Company Put Up For Sale

Activist investor Blackwells Capital is calling on Peloton Interactive Inc (NASDAQ: PTON) to seek a buyout rather than restructure its struggling business internally.

Peloton shares are down 76.2% in the last year as the company has struggled to find post-pandemic growth. Earlier this week, Peloton CEO John Foley stepped down for the position after Blackwells called for his ouster in January.

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Peloton's Problems: In a new presentation, Blackwells outlines the case for a Peloton buyout. Blackwells argues Peloton's stressed balance sheet, ongoing cash burn and lack of credible management makes a turnaround difficult.

"It will take years of operational restructuring, organizational redevelopment and positive results for the company to regain investor confidence and multiple expansion," according to Blackwells. 

Blackwells argued Peloton's operational failures have de-rated the stock from a high-growth SaaS valuation to a low-multiple hardware valuation.

Potential Peloton Buyers: Blackwells said Peloton is an extremely attractive buyout target for tech, streaming video, media, metaverse and sportswear companies. Blackwells said the company's high-quality premium subscriber base may be a particularly attractive asset for a potential buyer.

The firm mentioned Walt Disney Co (NYSE: DIS), Apple, Inc. (NASDAQ: AAPL), Nike Inc (NYSE: NKE) and Netflix, Inc. (NASDAQ: NFLX) as suitable buyers for Peloton.

The firm said Peloton could generate significant value creation opportunities for its buyers, including the potential for subscription bundles and network effects from the Peloton ecosystem.

Blackwells is not alone in considering Peloton a valuable buyout target. Earlier this month, Wedbush analyst Daniel Ives said acquiring Peloton would be a "major strategic coup" for Apple.

With aprojected 3.3 million Connected Fitness subscribers and 1.3 million Digital subscribers by the end of fiscal 2023, Blackwells estimates a fair takeover price for Peloton at $75 per share, more than double the stock's current $34.50 share price.

"Peloton is worth significantly more to a strategic acquirer than as a standalone business, especially given the difficult turnaround ahead," Blackwells concluded.

PTON Price Action: Peloton shares were down 7.29% at $34.73 Friday afternoon. 

Benzinga's Take: Blackwells makes a lot of good points, but its $75 price tag may be overly optimistic. Peloton priced its IPO at just $29 per share back in 2019, and it's safe to say at this point that the company's growth trajectory hasn't exactly gone as planned.

Photo courtesy of Peloton.