Peloton Stock Is Sinking After Earnings. What Wall Street Is Saying.

Peloton said its monthly customer churn rate was 1.4%, which is up from 0.75% in March.


Scott Heins/Getty Images



Peloton Interactive

CEO Barry McCarthy told shareholders on Thursday that when it comes to opinions about the company’s fiscal fourth quarter results, “what you see will be a function of where you sit.”

Critics will home in on declining revenue, negative gross margin, and deeper operating losses, McCarthy wrote in a letter, rather than notice the signs of a comeback and the long-term resilience that he sees. He was right.

Peloton (ticker: PTON) shares fell 19%, to $10.95, in Thursday morning trading after the company reported its latest quarterly results, which did little to assuage Wall Street’s concerns about its prospects. The connected fitness bike company reported a much-wider-than-expected net loss and missed sales expectations.

The stock’s drop erased a 20% jump on Wednesday after Peloton announced it was selling some products and equipment on Amazon.com in an apparent effort to find more customers after pandemic-driven demand faded. The move is among several steps taken under McCarthy, who took over in February after it became clear the firm needed to cut costs.

The earnings report also showed an average monthly churn rate—a measure of customers who cancel—of 1.4%. That was ahead of the 0.75% rate in the March quarter and above the 1.04% rate forecast by analysts.

BMO Capital Markets analyst Simeon Siegel called the firm’s market value into question with his Thursday note, which was titled “At This Market Cap, Is Defense Enough?”

“We’ve always believed PTON created a compelling community for its loyalists,but one that was increasingly saturated,” Siegel wrote. “We fear today’s announcement shows PTON may be working to improve its cash bleed, but faces a brand saturation issue. Defense is great, but is it worth this market cap?”

Though the company pointed to developments in Canada that impacted its churn rate, Siegel said a June price increase for the key connected subscription fee to $44 a month from $39 and an aging subscriber base are other possible factors for investors to watch.

Jefferies analyst Randal Konik, in his note recommending shares of



Planet Fitness

(PLNT) and



Xponential Fitness

(XPOF), was even less flattering with his title: “My Bike Now Dries Laundry …Does Yours?”

Konik argued Peloton’s results prove connected fitness is declining, pointing to average monthly workouts that are down 25% from the same period last year and the higher churn rate, among other declining metrics.

“There are many Peloton members that are no longer using the bike yet still paying the monthly membership,” Konik wrote. “Those fringe users are likely to cut the cord in coming months and years ahead, especially as monthly sub prices are increased by the company. This means PTON’s sub growth is likely to continue to stall and then decline in the years ahead.”

MKM analyst Rohit Kulkarni wrote that he wasn’t surprised by the stock’s initial decline in response to the report. He expected Peloton stock to give up the majority of its gains from Wednesday, and show weakness ahead.

“Apart from encouraging CEO commentary and modest anticipated improvementin margins, there are very few things to cheer about in today’s press release,” Kulkarni wrote.

“Given its level of cash, inventory, and cash burn, we view existential threats on Peloton as rising, particularly amidst an environment with reopening headwinds, rising interest rates, rising commodity prices (inflation), and possibly, softer consumer discretionary spend patterns as we head into” the second half of 2022, he added.

Write to Connor Smith at connor.smith@barrons.com

Leave a Comment