Shares of Peloton are down nearly 40% in 2021.
Courtesy Peloton
Peloton Interactive is set to report September quarter results at a precarious time for the at-home fitness firm. Wall Street already expects a dip in demand amid the historically weaker period, but the unraveling of the stay-at-home stock trade adds another hurdle for the stock.
Earlier this week, shares of online education firm Chegg (ticker: CHGG) sank after the company sounded the alarm about the overall education market. While Peloton’s (PTON) fitness aspirations make it a very different business, investors have grouped the stocks together as part of the so-called pandemic trade. The growth-oriented at-home focused businesses experienced surprise benefits amid lockdowns. Roku (ROKU), another stay-at-home stock that’s traded sideways in 2021, kept the trend going on Wednesday when its shares sank on a disappointing outlook.
Peloton’s shares soared north of $171 in the past year, as investors anticipated a paradigm shift for the maker of interactive fitness equipment. But the stock is down nearly 40% year-to-date, to a recent $89.90.
While the pandemic brought Peloton surprise profits and enabled investment in its manufacturing capabilities, sentiment for the stock has soured as investors ponder what comes next. The recall of Peloton’s higher-priced treadmill following the death of one child and dozens of reported injuries, has weighed on the company’s brand.
Peloton launched a lower-priced Tread toward the end of the summer, emphasizing its safety.
Peloton has said it’s seeing more seasonal demand trends, meaning the company can no longer rely on shutdowns and word-of-mouth to sell equipment, but must pivot back to spending more on advertising. It’s slashed the price of its flagship bike to $1,495, which executives say could bring more customers into the fold. Such changes could pressure Peloton’s margins in the near term.
That sets up the coming holiday season as a crucial test for Peloton. Wall Street’s consensus estimate calls for a net loss of $1.10 per share and sales of $809 million in the fiscal first quarter, which ended in September. Analysts expect that to improve to a loss of 63 cents a share in the December quarter with sales rebounding to a record $1.49 billion. Though the company was capacity constrained a year ago, with wait periods ballooning to as much as 12 weeks, Peloton still hit sales of nearly $1.07 billion in the December quarter of 2020.
“With the supply chain seemingly in good shape, and marketing spend increasing, we anticipate a ‘normal’ holiday season for sales, and are hopeful that sales data starts to show an uptick in [the second] half of November and December, driving renewed optimism on the stock,” BofA Securities analyst Justin Post wrote in a research note on Tuesday.
Still, Raymond James analyst Aaron Kessler, who has a Market Perform rating on Peloton shares, wants to hear more about broader component shortages and inflationary pressures. He also points out that it may be too early to draw definitive conclusions about holiday sales, since they historically pick up in early November.
“While we believe that Peloton is well-positioned in a still-growing Connected Fitness market and maintain a positive long-term fundamental view, we remain at Market Perform given signs of softening demand, increasing costs, and our view that risk/reward is less favorable,” Kessler wrote.
Operating during the pandemic brought supply chain challenges, but also elevated Peloton’s profile for investors and customers alike. The coming quarters could signal whether Peloton was a flash in the pan or a new fitness powerhouse.
Write to Connor Smith at [email protected]
