Peloton (PTON 3.06%) is a workout solutions business that enables people to exercise from home with bikes, treadmills, and accessories. Beyond its hardware, it also offers a subscription workout platform.
The company has grown revenue by around 6% for each of the last two quarters -- a dramatic decline from Peloton's previous yearly growth rates between 50% and 100%. Management tried to offset slowing demand, rising inflation, and supply chain pressures by increasing prices by $250 for the bike and $350 for the treadmill. But consumers lost their appetite at these higher prices and demand stayed low.
Peloton has increased its spending on sales, administrative, and general by 80% over the last year, while revenue has only climbed 12%. The rising expenses and flat revenue translates into earnings per share falling off a cliff. Peloton has gone from profitability one year ago to substantial losses today. And it's unlikely the trend of mounting losses will turn around soon, partly due to issues with the management team.
Changes at the top
Peloton just brought on a new CEO, Barry McCarthy who has a lot of problems to solve. In May 2021, Peloton announced that it was opening a U.S. manufacturing plant. And on Feb. 8, it said the facility would be shut down. This decision, along with bad guidance on capital raises and recent insider-selling, erodes trust in Peloton's management team and keeps the stock from looking like a buy for now.
How Peloton could reclaim traction
Even though we don't like Peloton, the company surely has fans in its millions of subscribers. On top of that, Peloton has retained 92% of them over the past year, proving that once consumers have the equipment, they are unlikely to cancel the subscription.
Check out the video below for our full thoughts.
*Stock prices used were the midday prices of Feb. 14, 2022. The video was published on Feb. 15, 2022.