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Can the Peloton share price climb back to its pandemic high?

The Peloton share price has fallen 77% from its pandemic high of $163 to $38 today. After disappointing Q1 results and a 'Sex and the City' blunder involving one of its exercise bikes, can it recover in 2022?

Peloton Source: Bloomberg

On 26 September 2019, the Peloton (NASDAQ: PTON) Initial Public Offering (IPO) saw the company priced at $29 per share, valuing it at $8.1 billion. At the time, it hadn’t turned a profit in over three years.

But early investors were in for a surprise. The Covid-19 pandemic saw Peloton strike a record high of $163 on Christmas Eve 2020, as demand for its at-home exercise equipment rocketed due to repeated lockdowns and mandated remote working for non-essential employees. But over the past year, the Peloton share price has collapsed by 77% to today’s price of $38. While financial results have been disappointing for investors, a recent television-based publicity misstep also hasn’t helped.

Peloton share price: Q1 2022 earnings

After reporting Q1 earnings on 4 November, the Peloton share price slumped 36% from $86 to $55 in the space of a day. Refinitiv data shows that analysts expected a loss per share of $1.07, against an actual loss in the quarter of $1.25. The company brought in revenue to the tune of $805.2 million, representing a 6% growth year-over-year. But this was $5.5 million short of analyst expectations. And overall, the company lost $376 million in the period.

Meanwhile, marketing expenses rose 148% to $284.3 million, as it aggressively advertised its flagship exercise bike. The company had already cut its price by $400 to $1,495 in a bid to boost sales, but CFO Jill Woodworth said that ‘while the price drop led to conversion rates that exceeded our forecast, overall traffic has not met our initial expectation.’ Increased competition from Tonal and Hydrow have hit sales, while gym reopenings has seen many consumers return to their more traditional exercise regimens. As a result of the price slash, Peloton’s gross margin fell to 12% from 39.4% a year earlier, while product sales fell 17% to $501 million.

However, one bright note for the company was subscription revenue, which grew 94% to $304.1 million. Peloton recorded 2.49 million connected fitness subscribers in the quarter (customers who own a Peloton product and pay a monthly subscription), with its entire member base now at 6.2 million customers. However, in a blow for investors, connected fitness subscribers completed 16.6 workouts per month on average, a drop from 20.7 a year ago.

Peloton 2 Source: Bloomberg

Where next for Peloton?

(Sex and the City Spoiler!) In a public relations disaster, the company authorised the use of one of its Peloton bikes in the reboot of ‘Sex and the City.’ What it didn’t know was that one of the characters would be depicted dying from a heart attack whilst using the bike. While the company released a statement saying that the bike ‘may have even helped delay his cardiac event,’ and created a parody trailer which depicted the character coming back to life, its share price fell 11% on Friday.

It’s not surprising, given the context. The company has been subpoenaed by the US Department of Justice after a child was killed and dozens of customers reported injuries caused by its machines. It’s recalled 125,000 of its Tread+ treadmills and is facing multiple lawsuits from delaying the recall. Peloton is also being investigated by the US Consumer Product Safety Commission, which says its products poses ‘serious risks to children for abrasions, fractures, and death.’ With an investigation ongoing, the television gaffe could not have come at a worse time for the company.

Looking forward, CEO John Foley said that ‘fiscal 2022 would be a very challenging year to forecast, given unusual year-ago comparisons, demand uncertainty amidst re-opening economies, and widely-reported supply chain constraints and commodity cost pressures.’ It expects its connected fitness subscriber count to grow to between 2.8 million and 2.85 million Q2, with a sales forecast of between $1.1 billion and $1.2 billion. And Peloton expects to hit profitability during 2023.

Accordingly, Deutsche Bank analyst Chris Woronka has set a target of $76 for the stock based on a non-pandemic analysis of its potential success going forward. But Cathie Wood, who bought 1.7 million shares in August, but has now sold about half of them. This serves as an indicator of Peloton’s potential forward risk.

But remote working guidance returned to the UK today. With the Great Resignation ongoing, America may not be far behind. As the impact of the Omicron variant is still yet to be truly felt, lockdowns might return. And if this happens, the Peloton share price soar.

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*Based on revenue excluding FX (published financial statements, October 2020).

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