Analysts say Peloton’s earnings may disappoint investors

Peloton Interactive Inc. logo on a stationary bike at the company’s showroom in Dedham, Massachusetts, USA, Wednesday, February 3, 2021.

Adam Glanzman | Bloomberg | Getty Images

Peloton’s problems have not disappeared in the new year.

JPMorgan analyst Doug Anmouth said Wednesday that a drop in visits to the Peloton website and higher-than-usual advertising activity prompted him to lower his forecast for a fitness streamer.

Anmut lowered estimates for revenue and subscriber growth in the second fiscal quarter, which ended in December. He expects second-quarter sales to rise to $ 1.1 billion from $ 1.06 billion a year earlier. He previously saw sales of $ 1.2 billion.

Slower subscriber growth is weighing on sales growth, and Anmouth expects Peloton to report 2.79 million subscribers, up from a previous forecast of 2.83 million.

Both estimates are below Peloton’s internal expectations. The company’s sales range from $ 1.1 billion to $ 1.2 billion, and the number of subscribers is from 2.8 to 2.85 million.

Anmut predicts annual sales of $ 4.2 billion from its previous call of $ 4.6 billion, and annual subscriber growth of 42%, up from 47%.

If implemented, this will be a noticeable slowdown compared to previous years. Peloton’s subscriber base jumped 114% in 2021 and grew 113% in the previous year.

In early November, Peloton cut its 2022 revenue forecast to $ 4.4-4.8 billion from $ 5.4 billion. It also lowered expectations for subscribers from 3.63 million to 3.35–3.45 million.

Peloton is likely to face weak consumer demand in the near future and uncertainty in the last half of the year, Anmut said. Citing data from Similarweb, he said that desktop and mobile visits to fell 5% in the quarter ending in December, compared to the same period a year earlier.

Peloton declined to comment. The income statement is scheduled for early February.

Analysts are losing confidence

It is not as easy for Peloton to rally as it was at the start of the pandemic, when the stock was considered a strong point. Competition is now coming from other home fitness options and gym chains such as Planet Fitness and Equinox from New York. This forced Peloton to spend more on acquiring new customers.

Analysts say Peloton’s next challenge is to introduce new workout devices beyond bicycles and treadmills, as well as encourage existing subscribers to build their own home gyms. He also plans international expansion, but this comes with short-term costs.

Anmut lowered its target price for Peloton shares for December 2022 from $ 70 to $ 50. That’s still roughly 48% upside potential compared to Tuesday’s close of $ 33.82. The stock hit a 52-week low of $ 32.02 on Wednesday.

Analysts covering the company expect its stock to bounce back. According to FactSet, the average target price for the stock is $ 72.42. BMO Capital Markets analyst Simeon Siegel has the lowest target in the group at $ 45.

For now, Peloton has nearly canceled out the gains in its stocks fueled by the pandemic. In 2021, stocks fell 76% after rising more than 440% in 2020.

Raymond James analyst Aaron Kessler also said early last week that he expects a disappointing December, which could prompt the company to cut its full-year forecast again.

“When Peloton released its forecasts, we assumed the company was envisioning a return to stronger seasonality in the December quarter after a slower summer season,” Kessler said in a note to customers.

According to him, the net addition of subscribers in the second quarter could approach 220,000 compared to the first quarter. Raymond James has a bearishness rating for stocks at $ 27 and a bullishness rating at $ 51. Kessler said the fair value would be around $ 38 per share.

Two days later, Baird analyst Jonathan Comp lowered the target price to $ 70 from $ 90. The firm also removed Peloton from its fresh list.

“Several indicators have lowered our confidence in short-term estimates,” Comp said in a research note. However, he said he was more optimistic about Peloton’s long-term prospects in the booming health and fitness industry.

Like JPMorgan’s Anmouth, Comp said second-quarter net additions could be around 300,000 and fall short of the company’s expectations.

He also said that Peloton instructors have not been gaining as many followers on social media as of late, which is a compelling indicator of past performances, he said.

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