What happened

Shares of Peloton Interactive (PTON 7.26%) are falling 3.4% in early-morning trading Monday, continuing the decline it was on during the holiday-shortened week last week.

Analysts at UBS (UBS 0.91%) slashed their price target for the connected fitness equipment maker because they believe its subscription numbers will be softer than the already weak figures Wall Street had built a consensus around. They lowered their price target from $65 a share to $30 a share.

Woman riding a connected stationary bike

Image source: Peloton Interactive.

So what

Peloton's fiscal first-quarter earnings report in November showed a rapid, unexpected deterioration in its revenue growth rate, with sales rising just 6% from the year-ago period. Engagement also collapsed on the platform as workouts per subscription fell 16% sequentially to 16.6 and were off 20% from the 20.7 seen last year.

While that's actually not surprising considering the amount of out-of-home exercise and entertainment opportunities now available to consumers, making indoor exercise less desirable, management was actually caught off guard by the pullback.

Peloton had repeatedly told investors its robust growth would endure despite the reopened economy, and admitted "we underestimated the reopening impact on our company and the overall industry."

Now what

Peloton is going through a period of readjustment to what may be a new normal for the connected fitness guru. Supply chain problems are still a concern for existing customers (though I did see Peloton trucks delivering new equipment to a neighbor before Christmas) and pricing cuts to minimize its image as a luxury brand could cut into profitability.