Monday, 9 October 2023

Why Peloton Interactive Stock Got Crushed in September

by Rose White

What happened

Shares of Peloton Interactive (NASDAQ: PTON) slumped 21% in September, according to data provided by S&P Global Market Intelligence. It was bogged down by another disappointing earnings report in August and overall investor pessimism.

So what

Peloton exploded early in the pandemic, becoming a household name despite its connected-fitness equipment’s premium price tag. But it has crumbled in the aftermath, laden by a string of missteps, slowing demand, and safety issues.

The founder left the company in the midst of the fallout, and CEO Barry McCarthy was hired in February 2022 to clean up the mess. He immediately laid out a list of short- and long-term goals. The first 12 months of his tenure were focused on stabilizing financial performance, and the following months have been dedicated to revitalizing growth.

There have been multiple signs of progress, including a 4% year-over-year increase in connected-fitness subscriptions in the 2023 fiscal fourth quarter (ended June 30) and a 10% increase in subscription revenue. The net loss improved by 81%, and the company generated pro forma positive free cash flow of $1 million.

Peloton is demonstrating strength in its relatively new rental service, with 48,000 subscribers, as well as a certified refurbished-equipment business, with 6,500 pieces sold.

But there are plenty of obstacles still to overcome. Besides the continued losses, revenue is still declining. It had a seat-post recall in May that’s costing it $40 million, and 15 thousand to 20 thousand members paused their subscriptions as they wait for their new pieces.

Now what

Peloton stock dropped like a stone after the earnings report in August, and that continued into September as the Federal Reserve signaled that it was likely to raise interest rates again soon and the market soured.

However, the company ended the month with an announcement that it was partnering with athletic wear company lululemon athletica. Lululemon will sell Peloton-branded clothing while providing access to digital content to lululemon’s Studio All-Access Members. The market reacted positively to the news, and Peloton stock is up 10% since the announcement.

Peloton could get back to growth as it continues to cut costs and fund new growth drivers, but it’s far from guaranteed, making this is a risky stock right now. Investors should wait for further signs of sustained progress before committing to a potential recovery.

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Jennifer Saibil has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends lululemon athletica and Peloton Interactive. The Motley Fool has a disclosure policy.