Peloton Shares Up 25% on Rumors of Acquisition Following the CEO's Departure Announcement

Peloton (NASDAQ:PTON) initially saw a rise in its stock price on Thursday after announcing cost-cutting measures and changes in leadership, but later experienced a decline of more than 10% intra-day today. The fitness company reported a third-quarter adjusted loss per share of $0.45, missing analyst expectations by $0.09. Revenue was almost in line with estimates, reaching $717.7 million compared to the expected $718 million.

The revenue marked a decline from the $936.9 million reported in the same quarter last year, highlighting a challenging period for Peloton. The company announced aggressive cost-cutting measures, including a global workforce reduction of around 15% (approximately 400 employees) and the announcement of CEO Barry McCarthy's resignation.

Peloton's restructuring efforts aim to align costs with its current business size and achieve over $200 million in annual expense reductions by the end of the 2025 fiscal year, with a focus on maintaining sustained positive free cash flow. The company reported its first positive free cash flow in more than three years, marking a significant milestone in its turnaround efforts.

For the fiscal year 2024, Peloton revised its revenue guidance to a range of $2.68 to $2.7 billion, which is slightly below the analyst consensus of $2.71 billion. This adjustment reflects current demand trends and anticipates a seasonal decline in demand in the fourth quarter.

UBS analysts slashed their price target for Peloton Interactive (NASDAQ:PTON) to $2.50 from $4.00, while maintaining their Sell rating on the stock. The adjustment reflects lowered expectations for revenue and profitability due to ongoing uncertainties around subscription growth and the company's ability to generate positive cash flow through growth initiatives. However, the analysts noted that positive cash flow could still be achieved through cost reductions, suggesting that Peloton's management might reconsider its cost structure in light of the poor conversion rates of app users to connected fitness subscribers following the May revamp of the Peloton app.

An analysis of Peloton's website traffic showed a positive trend in March, following a drop in January and a slight increase in February. This analysis considered total interactive visits, excluding those who leave the site without interaction. Despite the year-over-year comparisons showing easier conditions due to a significant drop last March, the recent promotional activities may have temporarily boosted these metrics. Despite these fluctuations, investor focus appears to be shifting towards the growth of connected fitness subscriptions in 2025, especially as the new tiered app membership and relaunched app have not driven the expected conversions to connected fitness.

BofA Securities analysts downgraded Peloton Interactive (NASDAQ:PTON) from Neutral to Underperform, setting a price target of $4.15, down from $6.50. The analysts expressed concerns about the company's revenue being at risk due to increased churn stemming from declining platform engagement and a subscriber base that faces potential challenges as COVID cohorts reach their average subscriber lifetime.

The analysts lowered estimates, with 2024-2025 revenue estimates trailing behind the Street by 6% to 14%, and EBITDA estimates significantly lower at -$103 million to -$74 million compared to the Street's -$36 million to $80 million.

BofA Securities analysts revised their rating on Peloton Interactive (NASDAQ:PTON) from Buy to Neutral and set a new price target of $6.50, down from the previous target of $13.00. This was followed by the company’s reported Q4 EPS miss and weaker-than-expected guidance.

The analysts explain the downgrade by pointing out the limited visibility on growth initiatives. Despite recognizing the value in the company's subscriber base, with a potential gross profit per subscriber of $1,350 and an overall value of around $4 billion, there are concerns about the certainty of future subscriber growth drivers. The analysts anticipate that elements such as app users, Fitness-as-a-Service (FaaS) expansion, partnerships, and international marketing could contribute to gross additions, but a rise in churn rates might hinder net subscriber growth.

Peloton (NASDAQ:PTON) shares plunged more than 9% intra-day today after Wolfe Research downgraded the company to Underperform from Peer Perform with a price target of $6 per share. Key factors behind Wolfe's bearish stance on Peloton include declining demand in the long term, a lack of confidence in new growth initiatives, and an unclear path to achieving sustainable profitability and free cash flow.

The analysts noted concerns about the potential decline in subscriber growth despite the significantly reduced outlook for Peloton's long-term growth. Additionally, the analysts pointed out that the unit economics of the business is deteriorating due to new strategic initiatives and limited pricing power.

Furthermore, Wolfe highlighted that new growth initiatives such as FaaS and Digital are still in progress and their potential contribution to sustained growth and profitability remains uncertain.

Peloton (NASDAQ:PTON) shares surged more than 30% since the company’s reported Q2 results on Wednesday, with revenue of $792.7 million coming in better than the Street estimate of $710.45 million. EPS was ($0.98), compared to the Street estimate of ($0.66).

The company expects Q3/23 revenue to be in the range of $690-715 million, compared to the Street estimate of $692.1 million. The quarterly results and outlook were an indication that the deep turnaround is showing signs of continued progress.

In addition to a meaningful revenue beat of 12%, the company reiterated its expectations to generate break-even free cash flow by the June quarter and provided a March quarter top-line guide that was ahead of the Street for the first time since the post-Covid sales slowdown commenced.

Peloton (NASDAQ:PTON) shares surged more than 30% since the company’s reported Q2 results on Wednesday, with revenue of $792.7 million coming in better than the Street estimate of $710.45 million. EPS was ($0.98), compared to the Street estimate of ($0.66).

The company expects Q3/23 revenue to be in the range of $690-715 million, compared to the Street estimate of $692.1 million. The quarterly results and outlook were an indication that the deep turnaround is showing signs of continued progress.

In addition to a meaningful revenue beat of 12%, the company reiterated its expectations to generate break-even free cash flow by the June quarter and provided a March quarter top-line guide that was ahead of the Street for the first time since the post-Covid sales slowdown commenced.