Peloton – $1 billion debt added
Peloton shares have fallen 25% in the last 5 days and 87% in the past 5 years. Yikes!
The company announced this week that it has a 5-year $1bn debt facility and will issue a further $275 million in convertible senior notes. Furthermore, it has a five-year, $100 million revolving credit facility. In total $1.4bn of credit has been secured, however, $800 million will be used in 2026 to pay off existing debts.
This sounds like a company that’s haemorrhaging cash and ripe for an acquisition. Speculation has linked Apple as a potential suitor but the only rumours link private equity interests.
Peloton tried to re-imagine itself last year as a fitness media platform rather than a cycling one. It now offers a variety of non-cycling classes and delights its core member base.
Q: Is this working?
A: Probably not.
The company is reported to have about 3 million connected fitness subscribers – which is an impressive number. However, its digital-only base (app) is rumoured to be 700,000 and falling. Clearly, these numbers are insufficient to generate either a positive cash flow or profit.
Take Out
Peloton has bought time.
At some point, something will have to give. Expect sparks to fly.
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Why are they bleeding so much cash? Are they losing money on the hardware? The subscription costs seem like they are more than enough to cover the content. This model seems like it should be a cash generation machine.
Well most likely it’s a lot invested in marketing and most likely many of those contracts are long term with individuals and all that and the more pos Covid and less indoor people are the less subscriptions they have and don’t really sell all the time the hardware since people don’t really change the bike for years so hard business logistics
I have felt as though Ray Maker (DCRainmaker) and others have continued to make claims that Peloton is healthy based on their size. Despite this, they have always, since 2020, appeared to be dying a slow and painful death. It’s just a matter of time.
I don’t think Ray would have said that.
You could argue that Peloton is in a dominant or strong position because of its size and market share.
Ultimately a continuous negative cashflow can only be sustained if there are others investing money. They will stop investing money when there is no risk-adjusted prospect of getting it back, plus a profit. #Bankruptcy
Reads as if original (pre-IPO) investors had a good run selling off their shares while the company kept up appearances shifting the money-burning from VC to debt. Surprised to see banks accepting that level of risk. Market capitalization, at the current near-penny level, is still roughly in the ballpark of originally raised capital, and even last-round investors would have come out positive selling at any point before summer ’22.
Those 1.4 bln even exceed the amount originally raised, I see no reason why any Apple or other would buy. Not even taking it for free, before stripping off the debt through bankruptcy.
quite possibly, yes.
bankers tend to be a smart bunch. but i agree it seems risky for them.
There’s is so much i don’t understand…. Do you happen to know their monthly fixed expenses?
happy reading: https://investor.onepeloton.com/financial-information/annual-reports