Consumer Products

The Analysts' Answer to 'How Bad Was Peloton's Q4?'

When Peloton Interactive Inc. (NASDAQ: PTON) posted fourth-quarter 2021 results late Thursday, the reported loss per share of $1.05 was three times worse than the consensus and far below the prior year’s quarterly profit of $0.27 per share. Revenue rose by 54% to $937 million, slightly better than the consensus estimate of almost $929 million.

Peloton guided first-quarter 2022 revenue at $800 million, well short of the consensus estimate for quarterly sales of $1.01 billion. That drop was due to last September’s bike price reduction, rising materials costs and higher logistics and transportation costs.

On the positive side, Peloton guided full-year 2022 revenue to $5.4 billion, above the $5.3 billion consensus, as well as 3.63 million Connected Fitness subscriptions. The forecast subscriber number is 1.3 million more than expected. Peloton expects an additional price cut of $400 to is bike’s price will boost both sales and subscriptions.

The stock dropped more than 5% in after-hours trading and traded down more than 10% shortly after Friday’s opening bell. An unexpected headwind came early Friday morning when the company announced federal subpoenas for documents and information relating to injuries caused by Peloton’s now recalled treadmill product.

Here’s reaction from seven brokerage firms to Peloton’s report, along with changes to their ratings and price targets.

Barclays kept its Overweight rating and $130 price target. Peloton reported fourth-quarter gross margins of 27% with the connected fitness gross margin at 11.6%, down from 45.3% a year ago. Barclays said that the impact on margins was “mainly due to higher-than-expected refunds from the tread recall along with continued increase in shipping costs.”

BMO Capital apparently did not change its Sell rating or its $45 price target on the stock. The analysts wrote, “Recommend the bike, especially for $1,495, worried about the shares.” The analysts also noted that the price reduction on the bike was the second in a year. Coupled with expected higher marketing costs for a new treadmill, “may speak more to materially higher inventory and competition than to [Peloton’s] democratizing of fitness.”

Cowen reiterated its Outperform rating on the stock and lowered the price target from $135 to $130. The analysts were especially pleased with Peloton’s positive EBITDA guidance for both 2023 and 2024. Overall, the firm said, “a bit of a reset on investments and costs but with strong sub[scriber] guidance and new product slate the long-term outlook remains very attractive.”

JPMorgan reiterated its Overweight rating and retained its $138 price target on the stock. Analyst Doug Anmuth, who on Tuesday lowered the firm’s price target from $140, commented: “If you had told me yesterday that [Peloton] would guide to 1.3M [connected fitness] net adds for FY22, I would’ve said the stock would be up 10%. But the composition of how [Peloton] is getting there is different than expected as the $400 V1 Bike price cut, significant marketing ramp, & increased costs for commodities & freight combine to drive EBITDA negative in FY22.”

KeyBanc, which in December rated Peloton as Outperform with a price target of $185, said that the bike’s price cut “underscores management’s commitment to driving market share (and [long-term] profitability).” The firm is optimistic on Peloton: “At 12.2x FY23 EV/ gross profit, we view this as a highly attractive entry point.”

Needham reiterated its Buy rating but lowered its price target from a recently raised $135 to $130. The analysts were most impressed with the company’s “focus on affordability, with the Bike price cut making its high-quality Connected Fitness subscription more accessible to more people.”

Oppenheimer maintained both its Outperform rating and its $140 price target. From the firm’s comments, though, better news had best follow: “While [management] is seeing pent-up demand for lower-priced [treadmill], 50% of initial sales are expected to go to existing bike [users], generating minimal new subscription revenue. In addition, Street will reduce [gross profit] estimates on supply chain headwinds (higher raw material cost and shipping) and lower margin of Tread.”

After about 45 minutes of trading Friday morning, Peloton stock traded down almost 8% to $105.25, in a 52-week range of $72.11 to $171.09. More than twice the daily average of 6.5 million shares had already been traded.