7 Peloton Analysts Break Down Q4 Earnings: 'Signs Of Softening Demand, Increasing Costs'

Peloton Interactive Inc PTON shares dropped 8.3% on Friday morning after the home exercise company reported a sharp drop in revenue growth.

On Thursday, Peloton reported a fiscal fourth-quarter adjusted EPS loss of $1.05, much larger than the 45-cent loss analysts were expecting. Revenue for the quarter was $936.9 million, beating analyst estimates of $927.2 million. Revenue was up 54% from a year ago.

The 54% growth represented a significant deceleration from the more than 120% growth the company had reported in each of the previous four quarters. One factor that weighed on fourth-quarter sales growth was a recall of both its Tread and Tread+ treadmills back in May.

Peloton reported 2.33 million connected fitness subscribers in the quarter, up 114%. However, the company said a 20% price cut for its original Bike machine will weigh on near-term earnings.

Peloton guided for fiscal first-quarter sales of $800 million, well short of the $1.01 billion analysts were expecting.

Price Cuts Hit Margins: Raymond James analyst Aaron Kessler said Peloton is facing a difficult near-term outlook thanks to “signs of softening demand [and] increasing costs.”

“While the price cut expands the addressable market for its hardware, this clearly comes at the expense of near-term margins and investors are likely to question how much demand is truly slowing (beyond seasonal factors),” Kessler wrote.

Oppenheimer analyst Jason Helfstein said Peloton’s growth initiatives are pushing back its profitability timeline.

“We expect enhanced HR monitor launching in F22, with rowing and strength products delayed to F22, giving PTON room to market lower-priced Tread and promote reduction in Bike 1 price,” Helfstein wrote.

Needham analyst Bernie McTernan said Peloton’s price cuts helped drive better-than-expected revenue and subscriber growth guidance for fiscal 2022.

“The main positive to us is PTON continues to focus on affordability, with the Bike price cut making its high-quality Connected Fitness subscription more accessible to more people,” McTernan wrote.

Subscriber Growth Silver Lining: Bank of America analyst Justin Post said Peloton’s guidance for fiscal 2022 net subscriber additions of 1.3 million exceeded analyst expectations.

“While uncertainties remain elevated, Peloton indicated that tread leads have been ‘incredibly strong,’ and we trust that this enthusiasm on the launch (8/30) is not unwarranted,” Post wrote.

Telsey Advisory Group analyst Dana Telsey said subscriber growth guidance was a silver lining in a disappointing quarter.

“Overall, while the forecast for an EBITDA loss in FY22, following two years of EBITDA gains in FY20 and FY21, is disappointing and comes as a surprise, the majority of the loss is expected in 1QF22 and Peloton should swing back to positive EBITDA in 2HF22,” Telsey wrote.

Long-Term Upside: Roth Capital Partners analyst George Kelly said the second-quarter report was messy, but he is still bullish on the stock.

“Long-term, we continue to see upside as it (1) widens the TAM through lower equipment pricing and greater product selection, and (2) generates a more ‘normalized’ margin due to CAC efficiencies and scale in the subscription business,” Kelly wrote.

KeyBanc analyst Edward Yruma said the company’s price cuts suggest management’s commitment to market share and long-term profitability.

“We view this as a critical inflection, with PTON aiming to drive more ‘internet’ market share (40%+) vs. ‘consumer’ market share (15%+) within connected fitness,” Yruma wrote.

Ratings And Price Targets:

• Bank of America has a Buy rating and a $138 target.
• Roth Capital Partners has a Buy rating and a $125 target.
• Raymond James has a Market Perform rating.
• Needham has a Buy rating and a $130 target.
• Oppenheimer has an Outperform rating and a $140 target.
• Telsey Advisory Group has an outperform rating and a $135 price target.
• KeyBanc has an Overweight rating and a $185 target.

Photo: Courtesy Peloton