Peloton Interactive
shares closed higher on Monday after the analyst who correctly predicted the firm’s postpandemic growing pains finally raised his call on the stock from Underperform.
BMO Capital Markets analyst Simeon Siegel raised his Peloton rating to Market Perform from Underperform and maintained a $9.50 price target in a Monday morning note. He pointed to the firm’s latest quarterly report, which included an outlook forecasting a dip in connected fitness subscribers. Connected fitness subscribers pay $44 a month to access classes and features on Peloton’s bikes, treadmills, and rowing machines.
“With PTON’s first negative Subscriber guidance behind us, we believe shares reflect concerns and we believe that, after all this time, the Risk/Reward has shifted, even seeing a likely upward skew at current levels,” he wrote.
Siegel downgraded the shares to Underperform on April 20, 2020, predicting that equipment sales driven by pandemic lockdowns would pull forward demand. The consensus view at the time suggested lockdowns had substantially expanded Peloton’s total addressable market.
Though shares surged north of $160 in December 2020 as the firm invested in efforts to meet such demand, Siegel was proved right in 2021 and 2022 as it became clear the firm had overestimated its growth prospects. The firm replaced founder John Foley as CEO with Barry McCarthy in February 2022. McCarthy, a former finance chief at
Spotify
and
Netflix,
has turned to new rental initiatives, price changes, and steep cost cuts.
The stock closed up 3.6% at $8.09 on Monday.
“Our Underperform rating the past few years was predicated on a mismatch between narratives and numbers; storytelling lifted shares as TAM tales painted a future more exciting than customer counts ever supported,” he wrote, referring to total addressable market. “We still fear TAM will prove materially lower than
management expectations and see risks (hence not Outperform), but also see green-shoots.”
Siegel notes the firm is once again beating revenue expectations. He added that inventory levels were down 56% year over year. And he said he calculated that the average monthly price per subscriber was up 2% quarter over quarter to roughly $36.09.
“Of note, this was the third quarter in PTON’s public history where we calculated an Average Monthly Subscription price greater than $35,” he wrote. “Critically, with more subscribers paying the higher monthly cost, this is a trend that should improve further from here (with the caveat being the upcoming digital tiering relaunch). And frankly, we expect PTON could even consider further monthly price hikes down the road (weighing heightened profit vs. some added churn).”
Write to Connor Smith at [email protected]
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