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Here's Why Peloton Stock Got Absolutely Smashed on Friday

By Jon Quast – Updated Nov 5, 2021 at 5:52PM

Key Points

  • Peloton beat its first-quarter guidance but isn't as optimistic about the rest of the year.
  • Wall Street's expectations were higher than Peloton's, leading to serious disappointment.
  • There's reason for concern about Peloton's quarter, but at least this important aspect of the investing thesis is holding up.

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It was a bad quarter, but rumors of Peloton's demise are greatly exaggerated.

What happened

Shares of connected-fitness company Peloton Interactive (PTON 3.42%) got absolutely smashed on Friday following the release of financial results for the first quarter of its fiscal 2022. Results were actually in line with guidance, but full-year guidance was revised lower, to investors' dismay. As of 10 a.m. EDT today, Peloton stock was already down an excruciating 30%.

So what

For the first quarter, management had guided for revenue of $800 million, 2.47 million connected-fitness subscriptions, and negative earnings before interest, taxes, depreciation, and amortization (EBITDA) of $285 million. The company's results actually beat on these points with revenue of $805 million, 2.49 million subscriptions, and negative EBITDA of "only" $234 million.

A woman in an office covers her eyes while looking at her laptop screen..

Image source: Getty Images.

However, analysts had expected revenue above Peloton management's guidance, so it failed to meet those heightened expectations. Moreover, the company lowered full-year guidance substantially, causing Wall Street analysts to lower their price targets for the stock. And in some cases, the downgrades were extreme. For example, Jonathan Komp, an analyst for Baird, lowered the price target on the stock from $160 per share to just $90, according to The Fly.

Now what

Previously, Peloton guided for fiscal 2022 revenue of $5.4 billion and 3.63 million connected-fitness subscriptions. Now the company is hoping for revenue of $4.4 billion to $4.8 billion and 3.35 million to 3.45 million active connected-fitness subscriptions by the end of the year. These are meaningful downward revisions, to be sure, so it's understandable for the stock to take a hit.

Here's one negative and one positive takeaway. On the negative, Peloton's chief financial officer said, "We underestimated the reopening impact on our company." This is troubling because Peloton is currently spending millions to ramp up its production capabilities and build out its new headquarters. It's crucial to have an accurate gauge on consumer demand when spending this much on supply.

But on the positive side, Peloton's products aren't being used to hang laundry, despite what you may have heard today. The company still has a 12-month retention rate of 92% (within its historical range), and users are still working out almost 17 times per month on average. That's down from pandemic highs, but it's still indicative of a well-loved piece of exercise equipment.

Retaining existing users is key to a Peloton stock bullish thesis, so while there are certainly things to watch, its ongoing customer retention is encouraging.

Jon Quast owns shares of Peloton Interactive. The Motley Fool owns shares of and recommends Peloton Interactive. The Motley Fool has a disclosure policy.

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