Shares of Peloton (PTON) have been under heavy selling pressure over the past few months. Is now a good time to buy? The exercise equipment maker is set to report second quarter fiscal 2022 earnings results after the closing bell Tuesday.
With gyms across the country forced to close during the pandemic, Peloton enjoyed a significant surge in membership as health enthusiasts looked for alternate ways to stay fit amid lockdown restrictions. But the company has tripped up, recently which has impacted investor sentiment. The market has lost confidence that Peloton’s at-home connected subscription platform can be monetized to produce sustainable results.
The company is navigating multiple headwinds, including supply chain constraints and balance sheet pressures. That said, now might be a good time to take a position, according to analysts at Baird who recently re-affirmed an Outperform rating on Peloton with a price target to $40, reflecting a 60% premium from current levels. The analysts believe Peloton offers yet potential value for the subscription business. What’s more, there are also ideas being floated that Peloton can be an acquisition target for, among others, Apple (AAPL) or Amazon (AMZN).
Reports suggests the Amazon has met with advisors to discuss a deal. In a note to clients, Youssef Squali, an analysts at Truist who has a hold rating and $68 price target on Peloton, said a deal would give Amazon “a strong entry in the health and wellness space, along with obvious benefits for Prime.” It remains to be seen whether a deal materializes. Until then, Peloton’s focus should be on execution.
In the three months that ended December, Wall Street expect the New York-based company to lose $1.20 per share on revenue of $1.15 billion. This compares to the year-ago quarter when earnings came to 21 cents per share on revenue of $1.06 billion. For the full year, the company is expected to lose $2.91 per share, worse than a 30-cent loss a year ago, while full-year revenue is expected to rise 5.8% year over year to $4.26 billion.
Much of the stock’s punishment has been related to lowered expectations. At the start of the quarter, Wall Street had modeled for Peloton to grow fiscal 2022 revenue at $34% year over year to 5.4 billion. Essentially, that growth has been reduced by thirty percentage points amid lowered demand and production. Nevertheless, the company has roughly 2.5 million fitness subscribers. Peloton, which has international expansion goals, needs to show that this number can still grow. The company believes it can grow that total to 100 million global subscribers.
In the first quarter after the company missed on the top and bottom line and issued disappointing guidance. Q1 revenue was up 6% to $805 million with connected fitness subscriptions growing 87% year-over-year to 2.49 million and paid digital subscriptions up 74% year over year to 887,000. In addition to widely-reported supply chain constraints, the company cited demand uncertainty as a key concern when issuing its guidance.
On Tuesday investors will want assurances growth for the current quarter and rest of the year. And until any M&A news is announced, analysts will focus on the company’s execution and growth metrics to determine impacts of various headwinds to assess whether revenue and profit growth is realistic in the quarters ahead.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
Richard Saintvilus
After having spent 20 years in the IT industry serving in various roles from system administration to network engineer, Richard Saintvilus became a finance writer, covering the investor's view on the premise that everyone deserves a level playing field. His background as an engineer with strong analytical skills helps him provide actionable insights to investors. Saintvilus is a Warren Buffett disciple who bases his investment decisions on the quality of a company's management, its growth prospects, return on equity and other metrics, including price-to-earnings ratios. He employs conservative strategies to increase capital, while keeping a watchful eye on macro-economic events to mitigate downside risk. Saintvilus' work has been featured on CNBC, Yahoo! Finance, MSN Money, Forbes, Motley Fool and numerous other outlets. You can follow him on Twitter at @Richard_STv.
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