Shares of The Beachbody Company (NYSE:BODY), which provides fitness subscription services and sells fitness equipment and wellness products, were lower by as much as 16.5% in morning trading on Nov. 17. However, today's drop needs to be put into a larger context, given that the stock has now lost about a third of its value in just the last two days. This all relates to its after-the-close earnings release on Nov. 15.
The big share price dive on Nov. 16 was really all about Wall Street's reaction to The Beachbody Company's weak quarterly results. Sales were down across its main businesses. Earnings fell notably year over year, dipping into the red. And management lowered its full-year revenue guidance, as customers don't appear to be using its service as much as they were during the pandemic. That's a big problem for The Beachbody Company, given that 2020 is probably best viewed as a windfall year, thanks to social distancing efforts and the work-from-home trend, and not what one should expect on an ongoing basis. So the million-dollar question is: What is normal and when will the company's results reflect it?
Not shockingly investors sold the stock after the earnings news. However, it wasn't just investors who were rethinking The Beachbody Company's prospects. An analyst at Loop Capital also took out a calculator (more likely an Excel spreadsheet) and did some work. Loop Capital downgraded The Beachbody Company from hold to sell, with a $2-per-share price target (down from $9). The current price is around $3.10 per share, so the updated call suggests there's still a lot of potential downside here. Investors don't like downgrades, so the selling continued for another day. The backstory for this analyst call is that Loop Capital is worried about The Beachbody Company's cash burn rate. Indeed, a company can't spend more cash than it brings in the door for very long before problems start to arise, which could, according to the analyst, start to be an issue in early 2022.
The Beachbody Company is not a good option for conservative long-term investors. Although it benefited from the pandemic, it's not yet clear how it will perform in a more normal business environment. Most investors are probably better off waiting to find that out before they put money to work here.