Shareholders of Peloton (PTON), the fitness equipment manufacturer, have recently experienced a rollercoaster ride. The company saw a meteoric rise in its stock price during the COVID-19 pandemic, fueled by a significant surge in home gym equipment sales. However, post-pandemic, Peloton’s stock plummeted almost 97% from its peak. Despite the steep decline, the firm is trying to pedal its way back to profit, with its stock rebounding 48% in the past 90 days.
Recently, the company has embraced cost-cutting measures and refined its financial base with longer-term debt. Introducing a gear rental service last quarter has further diversified its offerings. The company recently delivered revenue and earnings that exceeded expectations, though it still operates at a net loss. The stock trades at a relative value, and fundamentals seem to trend in the right direction, making this an intriguing option for value-oriented investors willing to take on a higher-risk turnaround opportunity.
Peloton Adopts Austerity Measures
Peloton Interactive is a globally recognized fitness platform provider that manufactures and sells products such as the Peloton Bike, Bike+, Tread, Tread+, Guide, and Row via e-commerce, retail outlets, and third-party stores.
In the spring, CEO Barry McCarthy stepped down and was replaced by board members Karen Boone and Chris Bruzzo, who have been acting as interim co-CEOs since. The two have focused on aggressive cost-cutting measures to trim the inflated expenses accrued during the company’s boom in the pandemic period.
Cost-cutting measures have been helpful but do not address Peloton’s core challenge: declining subscriber numbers. The company is projecting a 9% drop in subscriptions for its connected fitness product and 3% in-app subscriptions by fiscal 2025. To counter this, Peloton has focused on enhancing the user experience to reduce churn, though the outcome of these efforts remains uncertain.
Analysis of Peloton’s Recent Financial Results & Outlook
In Q4 of fiscal year 2024, revenue was $643.6 million, exceeding expectations of $630.48 million. These results were driven by $212.1 million from Connected Fitness Products and $431.4 million from Subscription Revenue. The gross profit for the quarter was $312.0 million, representing a gross margin of 48.5%. Total operating expenses stood at $375.3 million, improving from $426.8 million during the same period the previous year. The quarter ended with net cash of $32.7 million and free cash flow of $26.0 million, with earnings per share (EPS) of -$0.08, exceeding the analysts’ estimates of -$0.17.
Following fourth-quarter results, PTON’s management has issued forward guidance, anticipating a year-on-year decline in hardware sales and paid app subscriptions. Yet, the company does expect an improvement in the average monthly paid app subscription churn.
The full-year FY25 guidance anticipates a year-over-year decrease in hardware sales and a modest increase in average monthly paid app subscription churn. However, the gross margin is expected to improve thanks to cost-cutting measures, and the company expects to deliver a Free Cash Flow of $75 million, a meaningful year-over-year improvement.
What Is the Price Target for PTON Stock?
The stock has been on a volatile ride (beta of 2.87) down over the past three years, shedding over 94%. It trades near the middle of its 52-week price range of $2.70 – $7.24 and demonstrates positive price momentum, trading above its 20-day (4.57) and 50-day (4.18) moving averages. It trades at a relative value to industry peers, with a P/S ratio of 0.65x compared to a Leisure industry average of 1.9x.
Analysts covering the company have recommended taking a cautious approach to the stock. Based on the recent ratings and price targets issued by 18 analysts, it is rated a Hold overall. The average price target for PTON stock is $5.02, representing a potential upside of 4.37% from current levels.
Final Thoughts on PTON
After a tumultuous fall from soaring heights to staggering lows, Peloton is showing promising signs of recovery, helping drive the stock up 48% in the last quarter. However, the company faces declining subscriber numbers, a challenge that remains to be addressed. The future of PTON is uncertain but potentially rewarding for those ready to ride the risk.
