Peloton produces profit for the first time amid pandemic-demand spike, stock pushes toward new record


Peloton Interactive Inc. reported fiscal fourth-quarter earnings Thursday afternoon.


MarketWatch photo illustration/iStockphoto

A year after its initial public offering, Peloton Interactive Inc. is pedaling toward new highs amid a pandemic that is forcing people into their homes and away from gyms, creating demand for at-home fitness equipment.

Peloton
PTON,
-3.75%

on Thursday wrapped up its fiscal year by reporting that sales and subscribers roughly doubled in the 12-month period, and revealed its first profitable quarter as a public company and record quarterly revenue a little less than a year after its September 2019 IPO. Shares fell 3.8% Thursday from Wednesday’s record closing price of $91.17 — more than three times the IPO price of $29 a share — but pushed back toward record highs in after-hours trading following the release of the report, with gains of more than 7%.

Peloton reported fiscal fourth-quarter profit of $89.1 million, or 27 cents a share, on sales of $607.1 million, up from $223 million a year ago. Peloton reported a net loss of $47 million in the fiscal fourth quarter a year ago, just ahead of its IPO. Analysts on average expected earnings of 10 cents a share on sales of $586 million, according to FactSet.

“It has been another staggering year of growth, and I know all parts of the organization have had to work together to do everything possible to meet the incredible demand for our products and services,” Chief Executive James Foley said in a conference call Thursday. “The strong tailwind we experienced in March as the COVID-19 pandemic took hold has continued to propel demand for our products into the fourth quarter and first couple of months of Q1 fiscal year 2021.”

While still attempting to catch up to a flood of orders amid the COVID-19 pandemic — Peloton said Thursday it does not expect order-to-delivery times to normalize until around the end of the calendar year — the company is also looking to expand its customer base. On Monday, Peloton announced that it will reduce the price of its standard exercise bike and introduce a lower-priced treadmill, which could clear a path for potential buyers who were not willing to pay the large upfront costs for its products. It will also introduce a premium bike for fans who want top-of-the-line equipment.

Wedbush analysts noted that in a previous survey of 1,200 people, they found that Peloton could “dramatically improve” sales at a lower price point, especially in treadmills.

“42% of non-Peloton owners that were interested in fitness and familiar with the brand showed some level of interest in a $2,500 Tread, compared to just 30% showing interest in the current Tread,” the analysts wrote in a Sept. 9 note, after Peloton announced its new lineup. “Among existing Peloton bike owners, the number of respondents saying they would be ‘very interested’ in owning a treadmill from Peloton doubles based on the lower price, from 14% based on the $4,295 price point to 28% assuming a theoretical (at the time) $2,500 price point.”

While lower sales prices could hurt hardware margins and average selling prices, much of Peloton’s long-term prognosis focuses on the subscriptions for interactive workout media that owners continue to pay after they have received the equipment. Peloton announced Thursday that it now has 1.09 million subscribers, nearly doubling the 511 million that it reported at the end of its last fiscal year, topping its forecast of 1.04 million to 1.05 million.

In total for the fiscal year, Peloton collected revenue of $1.46 billion from the sale of equipment and $363.7 million from subscription services, up from $719 million and $181 million, respectively, in the previous fiscal year. Combined with other revenue from merchandise and other offerings, Peloton ended the year with $1.83 billion in sales, up from $915 million.

“By the end of FY 2020 our Peloton membership base grew to approximately 3.1 million, compared to 1.4 million members in the prior year,” Peloton detailed in a letter to shareholders Thursday. “Fueled in part by the challenges associated with COVID-19, member engagement reached new highs with 164 million Connected Fitness Subscription workouts completed in FY 2020.”

For the current fiscal year, which began in August, Peloton predicted htat subscribers and revenue would roughly double yet again. The company guided for revenue of $3.5 billion to $3.65 billion, with connected subscribers swelling to 2.05 million to 2.1 million. Analysts on average were predicting revenue of $2.74 billion and subscribers of 1.78 million ahead of the report, according to FactSet.

Peloton stock has gained more than 260% since its IPO; the S&P 500 index
SPX,
-1.75%

has returned 17.7% in that time. In after-hours trading Thursday, shares topped $94 following the release of the report.



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2020 is the year of the SPAC — yet traditional IPOs offer better returns, report finds


After a record 82 initial public offerings of special purpose acquisition corporations — known by the acronym SPAC — 2020 seems to have upended the traditional IPO market, yet most offer lower returns on average than conventional deals, according to a report.

Of 223 SPAC IPOs conducted from the start of 2015 through July, 89 have completed mergers and taken a company public, offering the chance to examine their performance, according to the report from Renaissance Capital, a provider of IPO ETFs and institutional research. Of those 89, the common shares have delivered an average loss of 18.8% and a median return of minus 36.1%. That compares with the average after-market return from traditional IPOs of 37.2% since 2015.

As of July 24, only 26 of the SPACs in that group had positive returns, the study found.

SPACs, also known as blank-check companies, have been around since the 1980s, but have become a juggernaut this year amid high levels of liquidity and a strong appetite for new growth companies.

Don’t miss: The CEO who made one of Silicon Valley’s worst acquisitions wants a $400 million blank check

SPACs raise money in an IPO, and then place it in a trust while the sponsor searches for a business or businesses to acquire, usually within a two-year period. The companies then complete a merger and the target becomes a listed stock. Recent examples include sports-betting operator DraftKings Inc.
DKNG,
-3.31%
,
electric truck maker Nikola Corp.
NKLA,
-1.60%

and space travel company Virgin Galactic Holdings Inc.
SPCE,
-3.69%
.

“It’s a back door to going public and avoiding scrutiny,” said Kathleen Smith, Principal at Renaissance. “You hear about the moonshots, like DraftKings and Virgin Galactica, which have done well, but the average return is negative. You can’t just blindly go in and make money.”

See also: A new breed of tech IPOs may give the stock market reason to party like it’s 1999

DraftKings went public via a merger with SPAC Diamond Eagle Acquisition Corp. and a gambling tech business, SBTech Global Ltd., earlier this year. The renamed DraftKings has been on a tear, gaining 258% in the year to date, even as major sports events were canceled during the pandemic.

Nikola merged with VectolQ Acquisition in June and immediately benefited from the cult status enjoyed by fellow electric vehicle maker Tesla Inc.
TSLA,
+2.78%

, which has propelled that stock to record levels this year. Nikola has gained 232% in the year to date.

See:Former House Speaker Paul Ryan to chair $300 million blank-check company: report

Virgin Galactic’s route to public markets came through a merger with Social Capital Hedosophia last October. The stock is up 35% in 2020, outperforming the S&P 500 ‘s
SPX,
-0.81%

5% gain and the Dow Jones Industrial Average’s
DJIA,
-0.56%

2% loss.

The recent crop of SPAC mergers have performed better than the broader group, the report found. The common shares of the 21 SPAC mergers completed in the period from Jan. 1 to July are averaging a return of 13.1% from their offer price, but that’s mostly due to the two highest performers — DraftKings and Nikola. Without those two, the SPACs produced better returns than in the period going back to 2015, but are still a negative 10.5%. That compares with the 2020 IPO market’s average aftermarket positive return of 6.5%.

The trend isn’t expected to end anytime soon. SPACs have raised a record $31 billion in 2020 to date, and new announcements are coming every day as investors seem to be racing to join the club. The year also brought the biggest-ever SPAC, when billionaire hedge-fund manager Bill Ackman took one public in July with more than $4 billion in its kitty to spend.

At the time, Ackman said he was “long-term bullish” on America and the stock market, although he was bearish on highly indebted companies.

James Gellert, chief executive of Rapid Ratings, a data and analytics company that assesses the financial health of private and public companies, said SPACs are a bull market phenomenon that gain in popularity when markets are doing well, as the stock market was until the recent selloff.

See: The ‘death of valuation’ and what it could mean for investors going forward

“There’s a lot of liquidity looking for nuanced asset classes and SPACs as a sub-category of equity is an interesting one to take a flier on,” he said. “If you have a diverse portfolio, a SPAC that is executed well is like a liquid private-equity investment.”

Many of the companies that are merged into SPACs come from private-equity portfolios, which usually means they are more mature businesses and in better financial health. For investors, they are really betting on the management team of the SPAC finding a good target business.

The broader initial public offering market is expected to be busy through the end of the year, with 45 companies in the current pipeline aiming to raise about $8 billion, according to Smith from Renaissance Capital.

See:Fisker is going public: Five things to know about the electric-car maker ahead of its IPO

Another 65 companies have filed confidentially with the aim of raising $28 billion, boosting the total to a potential 110 deals raising $36 billion.

So far this year, there have been 111 U.S. IPOs, raising $37 billion. The last year to see proceeds of more than that was 2014, when there were 275 deals that raised $85 billion.

“Even if we don’t get to that backlog of confidential filers, we’ll still probably exceed any year going back to 2014,” she said.

That was the year Alibaba Group Holding Ltd.
BABA,
-0.39%

went public, raising $25 billion in the biggest deal ever. That deal is expected to be eclipsed by the flotation of Ant Group, the payments company that was set up to serve Alibaba in 2004 and was spun off in 2011. Ant is expected to list on the Hong Kong and Shanghai exchanges later this year in a deal expected to raise up to $30 billion.

Smith said the pullback in stocks at the end of this week was a positive for the IPO market, “as it puts a bit more fear in the market. Fear gets better pricing, because multiples drop as peers drop and pricing falls,” she said.

Among the deals on tap are Palantir Technologies, the data-mining company backed by tech billionaire Peter Thiel; cloud data-warehouse company Snowflake Computing; videogame technology company Unity Software; Asana, a software provider started by Facebook; construction software company Bentley Systems; telehealth companies Amwell and GoodRx; packaging company Pactiv Evergreen Inc.; and Chinese online internet finance marketplace Lufax, among others.

The Renaissance IPO ETF
IPO,
-1.60%

has gained 49% in 2020 to date.



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Sanofi COVID-19 vaccine to cost below €10 and drug ingredients IPO planned within months, its France chief says


Sanofi’s experimental COVID-19 vaccine will cost less than €10 per shot, the pharma company’s France chief said Saturday.


Eric Piermont/Agence France-Presse/Getty Images

Sanofi
SAN,
+2.34%

stock rose 2.4% on Monday, after a senior executive said the French pharmaceutical giant’s COVID-19 vaccine will cost less than €10 and revealed plans to list its drugs ingredients unit in the next few months.

Olivier Bogillot, Sanofi’s chief in France, told France Inter radio on Saturday that the company’s coronavirus vaccine candidate, being developed in partnership with Britain’s GlaxoSmithKline
GSK,
-1.38%
,
was likely to be priced at less than €10 per shot but that a final price had not been set.

The potential vaccine, a slower effort than many of its peers, began human trials earlier this month, and it is hoped regulatory approval will be reached in the first half of next year.

Read: Sanofi looks to accelerate MS treatment with $3.68 billion Principia Biopharma acquisition

In the meantime, Sanofi is set to publicly list its active pharmaceutical ingredients (API) company, with an initial public offering planned in the coming months, Bogillot told France Inter radio. “The idea is to create a champion of active ingredients at the European level,” he said. The business could be valued at between €1 billion and €2 billion, sources told Reuters in July.

Sanofi announced plans in February to create a standalone company making API by combining its commercial and development activities with six of its production sites in Europe.

The French drugmaker said at the time it would decide whether to list the new company on Euronext Paris by 2022. It would be the world’s second largest API company, behind Switzerland’s Lonza
LONN,
+2.70%
,
with approximately €1 billion in expected sales by 2022, Sanofi said earlier this year.

The company said the spin off would help balance the industry’s “heavy reliance” on Asia for drug ingredients, which was highlighted through the disruption at the beginning of the coronavirus pandemic.



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5 things to know about Tesla ahead of its 5-for-1 stock split


Tesla Inc.shares will start trading Monday after a 5-for-1 stock split.

Tesla
TSLA,
-0.92%

announced the split on Aug. 11, saying it would “make stock ownership more accessible to employees and investors.”

Shareholders of record as of last Friday will receive a dividend of four additional shares of common stock for each then-held share, to be distributed after the close this Friday.

Apple Inc.
AAPL,
+0.03%

is also trading on a split-adjusted basis on Monday.

Here are five things to know about the Silicon Valley electric-car maker ahead of the split.

A record stock run has boosted market cap to $409 billion

Tesla shares have gained more than 400% this year, hitting 33 record closes in the process. The stock reached the latest on Thursday, when it closed at $2,238.75 and notched an intraday record of $2,295.60.

The stock is up 56% in August, which is shaping up to be its best month since May 2013 and its third best month on record.

See also:Tesla stock propelled higher by BofA and Morgan Stanley upgrades

The stock rally has boosted the company’s market valuation to around $409 billion on Friday, and made it the eighth biggest company in the U.S. by market cap. Tesla’s market valuation places it between Dow Jones Industrial Average components Johnson & Johnson’s
JNJ,
-0.10%

and Visa Inc.
V,
+1.73%

The latest string of records for Tesla came ahead of the stock split as well as a “battery day” that Tesla has set for Sept. 22. Wall Street views the event, a showcase of Tesla’s battery technology, as another potential catalyst for the stock.

Wall Street remains cautious on the stock, for the most part

For all the stock gains, most Wall Street analysts have a cautious view of Tesla.

Of the 36 analysts covering Tesla stock and surveyed by FactSet, 19% rate the stock a buy and 31% rate the stock a sell; the other 50% rate it a hold.

The average price target on Tesla is $1,288,87, or around 42% below its current level.

Tesla’s stock run has lifted the shares of other EV makers

These are heady days for shares of electric-vehicle makers, which several market observers pin at least in part on Tesla’s recent successes and ability to generate a fan base.

Massive investment flows have gone to EV companies such as Nikola Corp.
NKLA,
+6.02%

and China’s Nio Inc.
NIO,
-6.84%
,
Li Auto Inc.
LI,
-8.28%

and X Peng Inc.
XPEV,
+4.80%

have soared post their initial public offering prices. EV maker Fisker Inc. has filed for an IPO.

Analysts at Deutsche Bank have called for General Motors Co. to spin off its electric-vehicle operations and capabilities into a stand-alone company, “which could force the market to recognize its robust EV technology and coming (vehicle) lineup,” they said in a note earlier this month. GM was said to be considering the option.

Wall Street expects S&P 500 inclusion soon

Tesla is slated to become part of the S&P 500 index
SPX,
+0.34%

in the coming months.

The company cleared a major hurdle to index inclusion when it reported in late July its fourth straight quarterly GAAP profit.

Joining a major index would automatically get Tesla shares to the portfolios of thousands of index-tracking funds, and send managed funds scrambling to catch up with it as well.

What else changes on Monday?

Monday will bring changes for the Dow Jones Industrial Average
DJIA,
+0.41%

as well as the Apple and Tesla stock splits.

S&P Dow Jones Indices announced a shake-up earlier this week that goes into effect Monday. ExxonMobil Corp., a Dow component since 1928, will be replaced in the index by Salesforce.com Inc.
CRM,
-2.49%

Pfizer Inc.
PFE,
-0.50%

and Raytheon Technologies Corp.
RTX,
+1.74%

are out as well, replaced by biotech Amgen Inc.
AMGN,
-1.09%

and industrial conglomerate Honeywell International Inc.
HON,
+0.76%

S&P Dow Jones said the changes were prompted by the Apple split, and energy investors have called Exxon’s removal from the index a “sign of the times.” Integrated energy company Chevron Corp.
CVX,
+0.49%

remains a Dow component.



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As IPOs roar back to life, Wall Street readies for new breed of tech giants


A stampede of companies have filed to go public in recent days, as they look to take advantage of a rapid recovery in U.S. capital markets, in a flurry of activity reminiscent of the heady days of the dot-com boom of 1999.

A global total of 241 initial public offerings has been recorded so far during the second half of 2020, marking the fastest start to the second half of the year since 2007, according to financial data provider Refintiv.

Proceeds raised during the eight weeks since the start of July total $36.7 billion, up 140% compared with last year and a 10-year high for this period, Refinitiv data shows.

Read:IPO market braces for another 7 deals this week and yet another blank-check company

So far this year, IPOs have raised $96.7 billion globally, up 11% from the same period in 2019. The health-care sector dominated the number of listings in the period, raising a total of $15.4 billion, closely followed by technology with $14.7 billion and financials with $13.6 billion.

That number is set to surge as companies race to make their market debuts to raise capital, months after the coronavirus pandemic played a significant role in declining IPO activity.

Global IPO activity slowed dramatically in April and May, with a 48% decrease by volume (97 deals) and a 67% decrease in proceeds ($13.2 billion) compared with the same two months in 2019, according to data from EY.

Read:Global IPO market springs back to life after two months in a deep freeze

Earlier in August, short-term home rental company Airbnb filed with regulators for an IPO, but said it had not yet set the size and price range for the offering. That was followed this week by several Silicon Valley companies announcing plans to list on the U.S. stock market, including cloud data-warehouse company Snowflake Computing and videogame technology company Unity Software.

On Monday, Asana, a software provider started by Facebook
FB,
-1.98%
,
joined the list when it made public its IPO filing, opting for a direct listing. One day later, Palantir Technologies, the data-mining company backed by tech billionaire Peter Thiel, also filed to go public through a direct listing.

Read: NYSE’s Plan for New IPO Alternative Wins Green Light From SEC

Unlike a conventional IPO, where banks offer new shares to investors at a set price before trading begins, direct listings involve selling shares straight to the public, without paying underwriters to line up investors at a set price. This allows them to circumvent investor roadshows, avoid paying often hefty bank fees and steer clear of the lockup periods that prevent insiders from selling stock for a set duration, all of which accompany traditional public offerings.

Last year, Slack Technologies
WORK,
+0.62%
,
the owner of a popular workplace instant messaging app, also chose a direct listing, and saw its shares surge nearly 50% in their public trading debut, valuing the company at more than $23 billion. Music-streaming company Spotify Technology
SPOT,
-1.32%

also opted for a direct listing in 2018.

On Wednesday, the New York Stock Exchange gained regulatory approval for its proposal to allow to create a new type of direct listing, in which companies can issue new shares. Previously, companies had only been allowed to use the process for existing investors to sell shares.

Nasdaq
NDAQ,
+0.13%

was the most active exchange during the period, with debut listings raising $26.8 billion, according to Refinitiv.

Shanghai’s technology focused STAR Market ranks as the second most popular IPO venue so far during 2020, with $13.9 billion.

On Tuesday, China’s mobile payments firm Ant Group, the fintech arm of Alibaba and China’s dominant mobile payments firm, filed for a dual-listing on Hong Kong and on Shanghai’s Nasdaq-style STAR Market.

Read:Ant Group files IPO prospectus, says it earned $3.2 billion in first half

Ant is expected to fetch a market valuation of above $200 billion, which would make it the largest IPO of all time and propel Hong Kong and the year-old STAR Market up the ranking of the world’s top listing venues.

Opinion:Trump’s push to delist Chinese companies from U.S. exchanges might be welcomed by China

The move comes as the Trump administration has issued recommendations to crack down on listings of Chinese companies on U.S. exchanges that don’t comply with American accounting standards.

The European IPO market is also starting to show signs of life. On Thursday, retail and technology group The Hut Group unveiled plans for an IPO with plans to raise gross proceeds of £920 million pounds ($1.21 billion), giving the company an equity valuation of £4.5 billion ($5.6 billion). It would be the first major listing in London since the start of the pandemic.

The Lookfantastic owner, which sells both its own brands and over 1,000 third-party brands, said it would use the proceeds from the float to expand its business as it taps into the accelerating trend for online shopping.



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