One of the largest luxury exercise equipment makers in the US, Peloton Interactive, Inc. (NASDAQ: PTON), Peloton stock was one of the stocks that gained a lot of traction during COVID-19. Amidst the lockdown, PTON’s sales skyrocketed; gyms were closed, and people wanted to exercise while locked in their homes. After the lockdown restrictions eased, PTON found itself in a tough spot. Gyms were open again, and other competitors like Life Fitness which were more focused on the commercial gym space thrived again. The inventory PTON built to meet demand became a liability. Today, PTON stock has lost more than 94% of its value and is now trading below $8.00, a far cry from its all-time high of $167.42 in 2021.
PTON Fundamentals
Recent years weren’t kind to PTON; its revenue after the pandemic boom is decreasing, and it still can’t make a profit from its “Connected Fitness Products”, and while it is turning a profit from its subscriptions, it’s still not enough to make the business profitable as a whole. PTON tried a new strategy in 2022 by appointing the former Netflix and Spotify CFO, Barry McCarthy, as its new CEO.
One of the new strategies PTON tried was branching out of exclusively selling its products on its website and selling them on Amazon and Dick’s Sporting Goods, reducing its logistic costs and exposing its products to a new audience. PTON also started focusing on cutting operating costs and increasing its revenue from its members’ subscriptions, which PTON succeeded at as its subscription revenue increased YoY in Q3 2023 by 15% from $369 million to over $424 million. Furthermore, PTON cut its marketing expenses by more than 32% and laid off more than half of its employees by the end of 2022 – reducing its operating expenses by more than 41%. But PTON still suffered from a drop in sales of its hardware, which declined more than 45% from last year.
PTON saw a 27% year-over-year decline in website traffic, according to Morgan Stanley analyst Lauren Schenk. Some think the decline makes sense since PTON started selling its products on Amazon and Dick’s Sporting Goods, so the decline in web traffic doesn’t necessarily mean a decline in its sales too.
The decline in sales can probably be attributed to PTON shifting to the more profitable subscription model and focusing on increasing free cash flow, which in turn slows down its growth. “Our business has shifted more towards subscription relative to Connected Fitness hardware. So as the app grows as a larger share of our business, that will continue to shift, and more of our revenue will be coming from subscription.” McCarthy said on the company’s earnings call. That may be worrying as it is expected that PTON will lose subscribers in Q4 for the first time in its history. CEO Barry McCarthy warned investors and analysts, saying “Q4 will be among our most challenging from a growth perspective.”
The standing debt of a $1 billion convertible note loan and a $690 million term loan due in 3 years doesn’t help PTON’s case much either, as it probably won’t be able to get another zero-interest loan due to the current economy. As of now, PTON has only $873 million of cash on its balance sheet, most of which will be tied to paying off the debt, as it probably won’t be able to meet the debt’s conversion rate of $239 per share. That, combined with PTON paying $75 million in settlements to DISH Network Corporation (NASDAQ: DISH) over multiple patent infringements and the decline in sales and revenue, puts PTON in a tough position. PTON’s options are limited; it will either have to turn profitable to look attractive to a potential buyer or if it doesn’t, PTON’s worst fear could become reality and it could file for bankruptcy as the debt’s due date gets closer and closer.
It’s not all doom and gloom for PTON, though; there are some positive takeaways, albeit not many. PTON’s efforts to cut operating costs are working, reducing its cash burn by 92% YoY, and PTON is still expected to grow its connected fitness subscriptions by 4% YoY. PTON is also expecting to break even in cash flow by the end of the year if the one-time $75 million settlement with DISH is excluded.
As Liz Coddington, PTON’s CFO, said in the company’s latest earnings call, “the DISH settlement and related expenses associated with that settlement will put pressure on our free cash flow in Q4. So if you exclude those items, we actually are pretty close, but within striking distance of achieving free cash flow break-in.”. Additionally there is $625 million in PTON’s inventory that, if it successfully reduces, PTON would be saving a considerable amount of valuable storage costs, which would explain the collaboration with Amazon (AMZN) and Dick’s Sporting Goods (DKS). PTON is seemingly taking a lot of steps in the right direction, but it may still not be enough.
PTON Financials
In its Q3 2023 report, PTON reported $1.8 billion in assets including $874 million in cash and cash equivalents which marked a decline in PTON’s assets from $2.6 billion including $1.2 billion in cash and cash equivalents.
PTON’s total liabilities declined YoY from $3.4 billion to $3.1 billion, as its current liabilities decreased from $1.1 billion to $813.2 million, while its long-term debt saw a slight decrease from $2.331 billion to $2.330 billion
Revenue declined YoY from $964 million to $748 million, while the gross profit increased from $184 million to $270 million, due to a decrease in its cost of revenue from $780 million to $478 million. Operating losses decreased YoY from $735 million to $266 million and its net loss improved from $757 million to $275 million.
Technical Analysis
PTON stock’s trend is bearish, with the stock in a downward channel. PTON is trading below the 50 and 200 MAs which is a bearish indication and the MACD is approaching a bullish crossover. Meanwhile, PTON is trading above the 21 MA and the RSI is neutral at 49.
PTON stock just witnessed a major catalyst with the earnings release on May 4th, PTON stock is expected to further drop with the disappointing showing in the earnings release and the expected drop in subscribers in Q4. Considering the company’s massive debt load, bankruptcy could be a strong possibility for PTON.
With that in mind, a potential play could be going short with an entry on the retest of the 50 MA and take profits on retests of the 21 MA, the $6.75 support, and the retest of the lower trend line. Given the many concerns surrounding PTON’s future prospects, going short on the stock could prove to be profitable for traders. However, it should be noted that PTON is highly shorted and short squeezes could occur considering its status as a meme stock.
PTON Forecast
PTON is one of many cases of companies that thought they could sustain their growth after the pandemic but got hit hard by a different reality. The many measures taken to restructure the operations, including a more than 60% reduction in running costs, which led to a decrease in cash flow burn by 93% YoY. A sustainable and stable business may result from the shift to the subscription-based business model and attempts to boost cash flow. But as of now, PTON’s standing debt of $1 billion, decreasing YoY revenue, and the lack of sufficient cash flow will pose a challenge for its future.
PTON stock dipped more than 10% since the release of its Q3 earnings. Right now, PTON seems like a risky investment with no clear indications of its future, investors could be better off looking somewhere else.
PTON Fundamentals
Recent years weren’t kind to PTON; its revenue after the pandemic boom is decreasing, and it still can’t make a profit from its “Connected Fitness Products”, and while it is turning a profit from its subscriptions, it’s still not enough to make the business profitable as a whole. PTON tried a new strategy in 2022 by appointing the former Netflix and Spotify CFO, Barry McCarthy, as its new CEO.
One of the new strategies PTON tried was branching out of exclusively selling its products on its website and selling them on Amazon and Dick’s Sporting Goods, reducing its logistic costs and exposing its products to a new audience. PTON also started focusing on cutting operating costs and increasing its revenue from its members’ subscriptions, which PTON succeeded at as its subscription revenue increased YoY in Q3 2023 by 15% from $369 million to over $424 million. Furthermore, PTON cut its marketing expenses by more than 32% and laid off more than half of its employees by the end of 2022 – reducing its operating expenses by more than 41%. But PTON still suffered from a drop in sales of its hardware, which declined more than 45% from last year.
PTON saw a 27% year-over-year decline in website traffic, according to Morgan Stanley analyst Lauren Schenk. Some think the decline makes sense since PTON started selling its products on Amazon and Dick’s Sporting Goods, so the decline in web traffic doesn’t necessarily mean a decline in its sales too.
The decline in sales can probably be attributed to PTON shifting to the more profitable subscription model and focusing on increasing free cash flow, which in turn slows down its growth. “Our business has shifted more towards subscription relative to Connected Fitness hardware. So as the app grows as a larger share of our business, that will continue to shift, and more of our revenue will be coming from subscription.” McCarthy said on the company’s earnings call. That may be worrying as it is expected that PTON will lose subscribers in Q4 for the first time in its history. CEO Barry McCarthy warned investors and analysts, saying “Q4 will be among our most challenging from a growth perspective.”
The standing debt of a $1 billion convertible note loan and a $690 million term loan due in 3 years doesn’t help PTON’s case much either, as it probably won’t be able to get another zero-interest loan due to the current economy. As of now, PTON has only $873 million of cash on its balance sheet, most of which will be tied to paying off the debt, as it probably won’t be able to meet the debt’s conversion rate of $239 per share. That, combined with PTON paying $75 million in settlements to DISH Network Corporation (NASDAQ: DISH) over multiple patent infringements and the decline in sales and revenue, puts PTON in a tough position. PTON’s options are limited; it will either have to turn profitable to look attractive to a potential buyer or if it doesn’t, PTON’s worst fear could become reality and it could file for bankruptcy as the debt’s due date gets closer and closer.
It’s not all doom and gloom for PTON, though; there are some positive takeaways, albeit not many. PTON’s efforts to cut operating costs are working, reducing its cash burn by 92% YoY, and PTON is still expected to grow its connected fitness subscriptions by 4% YoY. PTON is also expecting to break even in cash flow by the end of the year if the one-time $75 million settlement with DISH is excluded.
As Liz Coddington, PTON’s CFO, said in the company’s latest earnings call, “the DISH settlement and related expenses associated with that settlement will put pressure on our free cash flow in Q4. So if you exclude those items, we actually are pretty close, but within striking distance of achieving free cash flow break-in.”. Additionally there is $625 million in PTON’s inventory that, if it successfully reduces, PTON would be saving a considerable amount of valuable storage costs, which would explain the collaboration with Amazon (AMZN) and Dick’s Sporting Goods (DKS). PTON is seemingly taking a lot of steps in the right direction, but it may still not be enough.
PTON Financials
In its Q3 2023 report, PTON reported $1.8 billion in assets including $874 million in cash and cash equivalents which marked a decline in PTON’s assets from $2.6 billion including $1.2 billion in cash and cash equivalents.
PTON’s total liabilities declined YoY from $3.4 billion to $3.1 billion, as its current liabilities decreased from $1.1 billion to $813.2 million, while its long-term debt saw a slight decrease from $2.331 billion to $2.330 billion
Revenue declined YoY from $964 million to $748 million, while the gross profit increased from $184 million to $270 million, due to a decrease in its cost of revenue from $780 million to $478 million. Operating losses decreased YoY from $735 million to $266 million and its net loss improved from $757 million to $275 million.
Technical Analysis
PTON stock’s trend is bearish, with the stock in a downward channel. PTON is trading below the 50 and 200 MAs which is a bearish indication and the MACD is approaching a bullish crossover. Meanwhile, PTON is trading above the 21 MA and the RSI is neutral at 49.
PTON stock just witnessed a major catalyst with the earnings release on May 4th, PTON stock is expected to further drop with the disappointing showing in the earnings release and the expected drop in subscribers in Q4. Considering the company’s massive debt load, bankruptcy could be a strong possibility for PTON.
With that in mind, a potential play could be going short with an entry on the retest of the 50 MA and take profits on retests of the 21 MA, the $6.75 support, and the retest of the lower trend line. Given the many concerns surrounding PTON’s future prospects, going short on the stock could prove to be profitable for traders. However, it should be noted that PTON is highly shorted and short squeezes could occur considering its status as a meme stock.
PTON Forecast
PTON is one of many cases of companies that thought they could sustain their growth after the pandemic but got hit hard by a different reality. The many measures taken to restructure the operations, including a more than 60% reduction in running costs, which led to a decrease in cash flow burn by 93% YoY. A sustainable and stable business may result from the shift to the subscription-based business model and attempts to boost cash flow. But as of now, PTON’s standing debt of $1 billion, decreasing YoY revenue, and the lack of sufficient cash flow will pose a challenge for its future.
PTON stock dipped more than 10% since the release of its Q3 earnings. Right now, PTON seems like a risky investment with no clear indications of its future, investors could be better off looking somewhere else.