How Seat-Post Recalls, App Relaunch, And Expenditure Shifts Shape Peloton's Future, According To This Analyst

Needham analyst Bernie McTernan reiterated a Buy rating on Peloton Interactive, Inc. PTON with a price target of $10.

PTON reported a fourth-quarter FY23 sales decline of 5% year-on-year to $642.1 million, beating the consensus of $639.9 million. EPS loss was $(0.68), missing the consensus loss of $(0.38).

The analyst notes that lower-than-expected revenue and the reclassification of capex to R&D pressured Q1 guidance relative to expectations. 

Peloton sees Q1 FY24 revenue of $580 million - $600 million, representing a decline of 4% Y/Y and 8% Q/Q at the midpoint.

The analyst adds that various moving factors impact guidance, including seasonal trends, the bike seat-post recall, app/brand relaunch, etc.

McTernan is eyeing management's comments on the positive acceleration of trends over the last eight weeks in hardware sales relative to the guidance of another sequential decline of CF subscribers.

The analyst thinks that Q1 results will be impacted by the movement of expenditures related to the development of internal-use software from capitalization to R&D expense.

This will lower capex but increase R&D in future quarters, McTernan adds. 

That said, management does not expect to be FCF positive in 1HFY24, looking for the shift to FCF positive to come in 2HFY24, the analyst notes.

Price Action: PTON shares are trading lower by 23.3% to $5.37 on the last check Wednesday.