Why Peloton Skyrocketed This Week
What happened
It may have been a tumultuous week for Peloton Interactive (NASDAQ: PTON) the company as its CEO resigned and it announced 2,800 layoffs; but it was a banner week for Peloton the stock as shares of the connected fitness specialist were up 51% as of Thursday's close, according to data from S&P Global Market Intelligence.
A number of different items drove the stock's surge.
Image source: Peloton.
So what
Peloton stock started off the week with a bang, jumping 21% on reports that Amazon (NASDAQ: AMZN) and Nike (NYSE: NKE) were considering making buyout offers for the company. Activist investor Blackwells Capital had been pushing the company to sell itself after the stock crashed more than 80% from its peak last January. According to reports in The Wall Street Journal and Financial Times, there are multiple parties interested in snagging the high-profile exercise platform.
Neither Amazon nor Nike appeared to be close to making an offer; they were only discussing a deal internally. Additionally, Peloton has given no indication that it is seeking a buyer despite Blackwells' demands.
The following day the stock surged again, climbing another 25%, after the company made several major announcements. It said CEO John Foley would step aside, becoming executive chair, and that Barry McCarthy, the former CFO of Netflix and Spotify, would take over the top post. Peloton also said it would cut $800 million in annual costs by slashing 2,800 jobs, abandoning a factory under construction in Ohio, and reorienting its supply chain to rely on third-party providers. It said those decisions would help it become consistently profitable. Initially, the market seemed unsure about the news, but the stock began to surge shortly after trading opened, a sign investors approved of the turnaround strategy.
Peloton also released its fiscal second-quarter earnings report Tuesday morning, which included guidance that was well below expectations, though the market overlooked that in favor of the restructuring announcements.
Now what
With the turnaround strategy now clear, it seems like the worst may be behind Peloton, but the hard work to repair the business is still in front of it. The McCarthy era also seems to have gotten off to a rocky start as a number of terminated employees crashed an all-hands meeting shortly after he took over to express their displeasure with the company.
With subscriber growth withering and losses mounting, McCarthy will have to act fast to implement the plan, but the buyout interest should help put a floor on the stock for now.
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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Jeremy Bowman owns Amazon, Netflix, and Nike. The Motley Fool owns and recommends Amazon, Netflix, Nike, Peloton Interactive, and Spotify Technology. The Motley Fool has a disclosure policy.
