Will Peloton Survive?

Peloton stock has suffered a massive drawdown from the lofty heights of 2021 when it eclipsed $160 per share. For the last few months, PTON share price has traded under $10 per share and that has investors wondering: does Peloton have a future?

What Happened To Peloton?

To know why Peloton stock fell, we need to examine the factors that led to its demise. A primary catalyst to its initial rise was the rise in demand for at-home fitness solutions when people were stuck at home. But as the economy opened back up and people returned to gyms, demand for home fitness equipment fell.

Another factor was the company’s lofty valuation. A couple of years ago, Peloton traded on future expectations for growth but as analysts re-adjusted their estimates, Peloton stock took a tumble, and it turned into an avalanche that gained steam. So much so that the share price fell by over 95% from its all-time highs.

To add insult to injury, news reports started to come out that the product had caused injuries, which in turn led to product recalls and customer complaints.

Then CEO and co-founder, John Foley, departed his role in February 2022.

Will Peloton Ever Recover?

The jury is still out on whether Peloton will ever recover, but the future looks bleak. Following 120% revenue growth in 2021, top line sales fell by 10.9% in FY 2022 and 21.8% in FY 2023.

Those figures have some speculating whether Peloton is in trouble financially. Yes, Peloton is in trouble financially and it may run out of the cash it desperately needs to survive.

The company has a negative operating income in all seven of its years trading as a public company. With just $813 million in cash on the balance sheet and having posted a loss of $738 million last in operating income last year, the end could be near for Peloton.

With that said, the company has a number of strengths, including its strong brand, loyal customer base, and innovative technology.

The most likely outcome for Peloton that would lead to some level of success or recovery would be a brand acquisition by a bigger, better-capitalized player who has demonstrated success in launching hardware and software products, such as Apple. But Tim Cook’s firm is famously averse to acquisitions.

How Do Analysts Rate Peloton?

If Peloton can execute its turnaround plan effectively, it is possible that the stock price could recover. Analysts are somewhat optimistic still that the company can find a way to patch the sinking ship. For example, Wall Street has the following targets on the stock currently.

• Needham: $11.64
• Credit Suisse: $12
• UBS: $8
• Barclays: $16.27
• Morgan Stanley: $4.50

Morgan Stanley is clearly the most bearish on the stock with a $4.50 fair value target while Barclays stands out as the most bullish with a $16.27 price target.

Does Peloton Have a Future?

For Peloton to have a viable future, it must overcome a number of significant challenges. Primarily, it must address its poor financials, where it is saddled with high debt, is experiencing declining sales, and has negative operating income that continues to burn through cash reserves.

The company’s pricing strategy is potentially alienating a lot of prospective customers too. High prices and a focus on high-end equipment limit the audience pool who can afford to purchase Peloton’s at-home fitness equipment.

Increasingly, Peloton faces competition from the likes of Mirror and Tonal, both of whom are offering high-quality workout content, and they are often priced lower than Peloton.

Wrap-Up

Will Peloton survive? The combination of financial, competitive, and business strategy risks facing Peloton now pose a serious threat to the company’s viability. 

Will Peloton ever recover? If a larger, better-capitalized firm acquires Peloton for its brand value and customer base, Peloton could rise from the ashes and recover well but, absent an acquisition or cash infusion, the future for the company looks grim.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.