Can Peloton Turn the Narrative Around?

From a business standpoint, the past year has been difficult for Peloton (PTON -5.61%). However, in this segment of "The Earnings Show" on Motley Fool Live, recorded on Feb. 11, Fool contributors Toby Bordelon, Brian Withers, and Jason Hall discuss a few positive signs for the exercise company in 2022.

Toby Bordelon: Interesting couple of weeks for Peloton. You see the stock chart over the past year. Not awesome, not the best. But we have seen a little bit of a tick-up recently because of acquisition reverse, I think in large part, has been some acquisition reverse. None of that is materializing so far, but the market is ever hopeful. We shall see. Revenue was up, earnings-per-share, they're still negative, big loss versus the profit last quarter or year-over-year. Both those were misses and they're guiding for revenue that's actually lower than the quarter they just put up for next quarter, so you look at that and say falling revenue.

It's not that bad, remember, if you've followed them the last few quarters we've seen sequential revenue declines. Q2, the one they just reported, had an increase. We saw an increase from that. That was really nice, you reverse that trend, looks like they might be a little bit down but not too bad for the next quarter.

The big issue here was, they just have to wait. They really overestimated their demand that's what happened. Overbuilt, really built out. This was coming after not even a year ago, we were talking about can they meet demand? They need to produce more, they don't have enough production. A big turnaround here.

The big news, of course, the new CEO, John Foley is stepping down, he remains as executive chairman. Interestingly, they made it clear that there are no changes to the supermajority voting stock. He remains firmly in control of this company. Barry McCarthy is appointed CEO and president, he is joining the board. The existing president is staying on the board but relinquishing the president's title. Mr. McCarthy was a former CFO at Spotify (SPOT -1.36%) and Netflix (NFLX -0.20%). He's got some VC experience.

They are saying, how this is part of a month-long succession plan, they've been trying to find the right guy. Mr. McCarthy's put out a letter to the employees recently. Yesterday, two days ago.

Brian Withers: I just posted the link in the Slido.

Bordelon: People should take a look at that. If you read that, my impression is this does not look like a man who was hired to sell the company. It looks like a man who was hired to turn the company around and to continue forward as an independent business.

Now they could be playing it really slyly here, trying to boost devalue for an acquisition. But if I had to guess, I would say they do not plan to sell this business and for the foreseeable future, it's going to remain independent and they're trying to recover, they're trying to build stuff back. They are restructuring, they're doing some cost-cutting, remember that big plant in Ohio they were building to much fanfare. Well, they're selling that, before it's even operational. That's going to be done.

But the business keeps growing. Churn is still low Brian, can I just put the subs up 66% year-over-year? They have 6.6 million members. It looks pretty good. I just saw a review today on a tech site about the tread and the review was like this is one of the best treadmills I've ever run on.

Withers: Wow. That's really awesome.

Bordelon: It's awesome. Then the person we're just talking about, the real disconnect between how great they thought this product was and all the struggles the business is having right now, it was weird. But people love the products. Look at the churn rate, it's 0.79% net monthly churn, 92% 12-month retention rate, it's solid.

Withers: That is incredible for exercise equipment.

Bordelon: It is, and that 12-month retention rate is important because when you buy the bike or the tread, you have to commit to a year.

Withers: Twelve-month.

Bordelon: But people aren't leaving, they are reupping when that mandatory period is done. I think there's potential here. I'm hopeful the new leadership can turn this around. That's the concern. The business looks pretty solid, you may have concerns with evaluation, but the real issue is can they turn the narrative around? Can they make this a company people are really excited about again? Not just our members but the market in general, I don't know, we'll have to see. The Peloton Guide is still launching April 5, I'm on the waitlist for one, you going to get one, Brian?

Withers: Oh, man, I didn't realize they were coming out.

Bordelon: Yeah. It's a smaller device. It hooks to your TV. It's meant to be a strength training device where you use your own weights. But unlike some of the others out there, it uses the existing television screen you have in your living room, and therefore brings the cost way down to under 500 bucks.

Jason Hall: They wanted to name it shake-weight TV, but apparently, that was already...

Bordelon: Yeah. [laughs]

Hall: All right, Toby. Sorry.

Bordelon: Interesting. We'll see, this is one you want to keep an eye on. I think the big story this quarter is a lot of changes, let's watch and see what happens.

Withers: I appreciate the Peloton. I don't know if it was leaked purposely or whatever, but the CEO letter was very insightful about his perspectives and where he wants to take the company, and his philosophy. I would encourage all investors to take a look at that.