Interactive Investor

ii view: Peloton shares crash to new low

10th May 2022 16:01

Keith Bowman from interactive investor

Health and fitness trends persist but the going remains uphill for this exercise technology company. We assess prospects. 

Third-quarter results to 31 March  

  • Revenue down 24% year-over-year to $964 million 
  • Net loss of $757 million, down from a loss of $8.6 million
  • EBITDA loss of $194 million, 27% better than the prior Q2 period

Guidance: 

  • Expects fourth-quarter revenue of between $675 million to $700 million
  • Expects fourth quarter adjusted EBITDA loss of around $120 million to $115 million

ii round-up:

Connected tread mill and cycle machine maker Peloton Interactive (NASDAQ:PTON) today reported both sales and losses worse than Wall Street forecasts as unsold stock accumulated given reduced demand in the wake of the pandemic. 

Revenue of $964 million for the third quarter missed analyst estimates of nearer to $973 million, having fallen from over $1.2 billion in the year ago quarter. A loss of $757 million contrasted with a loss of under $10 million in the prior year third quarter, while management also cut its fourth quarter sales forecast to between $675 million to $700 million. A year ago, sales hit $937 million. 

Peloton shares fell as much as 20% to just over $11 in the aftermath, having already fallen by around 60% year-to-date. Shares for US gym operator Planet Fitness Inc Class A (NYSE:PLNT) are down by nearer to 25% during 2022. The S&P 500 has retreated by around 16%. 

Earlier in the week Peloton agreed a $750 million five-year bank loan to help boost cash held which had totalled $879 million at the end of the quarter. 

Peloton generates revenues via both product sales and subscriptions to its online sessions from both Peloton machine owners and non-product owners. Connected Fitness Product sales dropped 42% year-over-year to $594 million. Subscription revenues climbed 55% to $370 million. 

Operating expenses across the company doubled year-over-year, hit by higher logistical expenses, increased port and storage costs, and restructuring charges.  

Customer memberships climbed 29% from the year ago quarter to 7 million, or by 5% from the previous quarter’s 6.7 million. 

ii view:

Founded in 2012 and headquartered in New York, Peloton generates just over 80% of its sales in the US. That’s followed by Canada at around 10%, with the rest of the world making up the balance. Revenues are divided roughly 80:20 between product sales and subscription revenues.  

For investors, changes in management and moves to both stabilise cashflows and inject growth again offer hope. Cost savings of at least $800 million are being targeted by the full year 2024, while broadening its distribution to third party retailers is now in focus, along with growing its overseas sales. 

But below-forecast sales and losses continue to leave investor confidence fragile. Previous product safety issues and recalls sit alongside supply chain challenges, while growing competition has also likely added to its required product price cuts. On balance, and with the pandemic muddying the waters and few signs yet of an upturn in fortune, investors may for now wish to watch this story unfold from the sidelines.

Positives: 

  • Targeting 100 million customer members
  • Potential to grow overseas

Negatives:

  • Growing competition
  • Not paying a dividend

The average rating of stock market analysts:

Strong hold

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.