In a presentation at Goldman Sachs' Communacopia Conference on Sept. 22, executives from exercise equipment manufacturer and subscription-based workout provider Peloton Interactive (PTON 0.66%) laid out their case for the company's future. Management used upbeat words like "incredible," "fantastic," and "excited" a lot in their remarks and Peloton may indeed have a solid plan, but several potential red flags could also be found in what they had to say.

Here are three cautionary points from Peloton management that investors might want to consider.

A man runs on a Peloton Tread treadmill in a home while facing a window and surrounded by furniture.

Image source: Peloton.

1. Peloton is relying on the Tread

As Peloton's earnings and share price stumble in response to dropping monthly workouts and a product recall fallout, the company is lowering prices to boost sales. The price of the Peloton Bike was reduced by around 20%, or $400. That's the second Bike price reduction in the past year.

As the company looks beyond the Bike, it appears the treadmill could become the cornerstone of Peloton's future equipment sales strategy. Following the device's recall earlier this year after several reported accidents (including serious ones) involving children, the company released an updated Tread in the United States, Canada, and England on Aug. 30. Peloton says the Tread has improved safety features now, including a four-digit passcode and a removable security key. The current Tread model is the lower-priced version, not the higher-end Tread+ to come, though its baseline cost is still $2,495. 

During the Goldman Sachs presentation, Peloton CEO John Foley said that while the Bike is a winner in the "cardio" category, "this year, we plan to invest in also owning strength." He said the Tread is the current keystone of the company's "strength" category strategy, and other products are in development.

Focusing on the Tread, however, has several potential downsides. Foley says it's not as well known as the Peloton Bike and that consumers tend to take treadmills for granted, as "they've been hardware for decades and decades." CFO Jill Woodworth added that the Tread also has "a lower gross margin" than the Bike. The Tread's success could hinge on how well a significant advertising investment does in raising brand awareness. 

2. Peloton says it needs to outcompete gyms for clients

Referring to fitness centers during the presentation, Foley said that "if we own strength and if we own cardio, we're going to shift tens of millions of people out of gyms and into their home, where they can get more fit at a better value."

Poaching that many people from in-person fitness centers, while the economy is reopening from the pandemic, could be a challenge. Competitor F45 Training (FXLV), for example, is attempting to leverage technology to combine far-ranging workout flexibility with the camaraderie and motivation of traditional gyms. F45 also offers an at-home exercise program. Furthermore, while metrics remain positive for Peloton, they do reveal some signs of declining at-home workout interest. According to data released in Peloton's fiscal Q4 2021 earnings conference call, average monthly workouts per subscription dropped from 24.7 to 19.9 year over year.

It's quite possible the company could reach its profitability targets with its existing customer base. But luring "tens of millions" of new customers away from gym memberships when even its own current subscribers are using its services 19% less suggests reaching that goal will be difficult.

A man exercises on a Peloton Bike while looking out a window in a room of a home while a woman walks past him into another room of the house.

Image source: Peloton.

3. Peloton is counting on international growth

Peloton's executives also mentioned during the presentation how the company is looking to grow outside the United States to drive a return to profitability. They touched on strong growth in the new Australian market, probably a positive indicator for the strategy.

However, a study from the International Health, Racquet, & Sportsclub Association (IHRSA), a nonprofit gym trade association, raises some doubt regarding the possible size of Peloton's worldwide total addressable market. The study shows the U.K. and Germany, which make up Peloton's "showcase" market, together had total 2019 fitness center revenue of $12.4 billion, only about 35.4% of America's $35 billion fitness center market. Out of approximately 210,000 gyms currently operational worldwide, 41,370, or 19.7%, are in the United States. Taking these metrics as proxies for the exercise market, Peloton might be already operating in its biggest, most accessible market, with more limited possibilities overseas.

Foley also cited Netflix as part of the basis for Peloton's international growth strategy. But while Peloton streams exercise media and Netflix streams movies, the two companies operate in very different sectors, arguably making such comparisons uncertain.

Is Peloton still a winning bet?

Peloton's Communacopia presentation didn't focus just on its Tread strategy, but also on how the company sees itself navigating the next few years. Company executives said they consider this fiscal year an "investment year," with losses normal and expected. Spending on research and development, advertising, "software and hardware engineering," and acquisitions are all said to be laying the groundwork for a triumphant return to positive earnings growth next year.

Against this backdrop, the potential warning signs referenced above become easier to analyze. Peloton plans to focus on the Tread, though this will require boosted advertising spending because of low product recognition, and it involves a device with a lower margin than the Bike, past safety issues, and a hefty price tag in a market where $300 to $600 treadmills are common and readily available. Attempting to win "tens of millions" of new clients away from physical fitness centers is likely an uphill battle, while the international market is a potential bright spot but might present its own weaknesses.

Still, Peloton is a successful company, winning plenty of recognition and momentum for itself in 2020. It's probably still a bull case among consumer discretionary stocks in the long term, though its stock market performance may continue dropping in the short to medium term. Shareholders or potential investors may want to consider these risks when deciding whether to hold or buy into Peloton.