Stocks of Peloton soar 14% on reports private equity firms are interested in acquiring the company

Peloton Interactive Inc.'s stock experienced a significant surge of 14% in early trading on Tuesday, following a report from CNBC suggesting that private-equity firms are contemplating a potential acquisition of the company.

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According to sources familiar with the matter cited by the news outlet, discussions have centered around strategies to enhance the appeal of the connected-fitness company, such as implementing cost-cutting measures.

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When approached for comment by CNBC, Peloton opted to withhold any statement and did not immediately respond to a request.

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Initially hailed as a triumph of the pandemic era, Peloton witnessed a surge in demand for its fitness equipment and software amid stay-at-home mandates. However, it appears to have lost its momentum since then.

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The departure of Chief Executive Barry McCarthy was announced by the company last week, following a tumultuous period during which its stock plummeted by a staggering 90%.

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In response to its financial challenges, Peloton unveiled a new restructuring initiative aimed at achieving annual cost savings exceeding $200 million. This initiative is anticipated to result in a reduction of approximately 15% of its workforce, translating to approximately 400 employees. Notably, Peloton had already undergone multiple rounds of workforce reductions in 2022.

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In a letter addressed to shareholders, the company explained, "The objective of the cost reductions is to align our cost structure with the current size of our business and position Peloton to generate sustained and meaningful positive free cash flow, which is a top priority for us."

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Peloton shared its fiscal third-quarter results concurrently with this announcement, reporting a revenue of $717.7 million, a decline from the previous year's $748.9 million. Analysts, as per FactSet data, had anticipated revenues of $721 million.

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The company's net loss narrowed to $167.3 million, or 45 cents per share, compared to $275.9 million, or 79 cents per share, in the corresponding period of the previous year. Analysts had projected a loss of 36 cents per share.

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For the full fiscal year ending in June, Peloton expects revenues in the range of $2.675 billion to $2.700 billion, falling short of analysts' expectations of $2.706 billion. Additionally, the company anticipates an adjusted Ebitda loss of $5 million to $20 million for the period, in contrast to the $64 million loss projected by analysts.

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In addressing its debt obligations, Peloton noted last week that it is cognizant of investor interest in its debt maturities. The company stated, "We believe that achieving sustained positive free cash flow makes Peloton a more attractive investment for debtholders. Overall, our refinancing goals are to deleverage and extend maturities at a reasonable blended cost of capital."

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According to FactSet data, Peloton holds $1.69 billion in outstanding debt, comprising a term loan and $1.0 billion worth of convertible bonds set to mature in 2026.

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On Tuesday, the company's bonds experienced a rally, gaining approximately 3 points throughout the day, as illustrated by data from BondCliQ Media Services.

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Despite these developments, Peloton's stock has witnessed a year-to-date decline of 33%, in stark contrast to the 9% gain observed in the S&P 500 index.

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