Peloton has target cut by Roth Capital

Roth Capital Partners analyst George Kelly has taken a few chops to his price target for fitness platform Peloton Interactive (Peloton Interactive Stock Quote, Charts, News, Analysts, Financials NASDAQ:PTON), saying the outlook remains challenging. In a Thursday report, Kelly reiterated a “Buy” rating on the stock while lowering his target from $20 to $11, which at press time represented a projected one-year return of 25 per cent.

Peloton, which has connected, tech-enabled fitness programs through the streaming of instructor-led classes, reported its fiscal third quarter 2023 on Thursday, coming in with revenue of $748.9 million, representing a year-over-year decline of 22 per cent and a sequential drop of six per cent. (All figures in US dollars.)

Connected fitness subscriptions were up five per cent year-over-year for the Q3 to 3.1 million and average net monthly connected fitness churn was 1.1 per cent compared to 0.8 per cent a year earlier. Adjusted EBITDA was negative $19 million compared to negative $194 million a year ago.

“Later this month we will relaunch our brand in order to better communicate the brand value proposition and we will re-introduce the Peloton App with a tiered membership structure as a mobile gateway to our amazing fitness content from strength and meditation to outdoor running,” said CEO and President Barry McCarthy in a statement. 

“Our goal in relaunching the App is to engage new categories of customers, drive top-of-the-funnel awareness for Peloton, and become a meaningful contributor of revenue for our business,” he said.

Looking at the results, Kelly said the $749 million topline was better than his estimate at $701 million and the EBITDA loss of $19 million was also a beat of his forecast at negative $46 million. Connected fitness subs were also ahead of his estimate.

At the same time, Kelly said management’s guidance for the fiscal Q4 was mixed. Expected total revenue of $630-$650 million was better than the consensus and Kelly’s estimates, but EBITDA at negative $25 million was under both Kelly’s and the Street’s forecast.

“Conference call commentary and our recent industry checks show continued demand challenges,” Kelly wrote. “At-home fitness, as it has been historically, is volatile, and we are uncertain when demand trends will improve. Whenever it does, we expect PTON to consolidate share as peers are facing even greater balance sheet and profitability challenges.”

The analyst noted that Peloton is attempting to target additional growth avenues, including commercial, corporate and apparel, but that these will likely take time to become material contributions.

Kelly readjusted his forecast and is now calling for full fiscal 2023 and 2024 revenue of $2,791.0 million and $2,883.5 million, respectively, and fiscal 2023 and 2024 EBITDA of negative $196.8 million and positive $43.2 million, respectively.