What happened
Shares of Peloton Interactive (PTON 2.62%) are jumping 16.8% this week from where they closed last Friday, according to data from S&P Global Market Intelligence, after several analysts gave the maker of connected fitness equipment the thumbs-up for growth.
As the leader in this relatively new field of exercise, and with a new model for attracting new customers and returning to growth, Wall Street has a more favorable outlook for Peloton.
Image source: Peloton Interactive.
So what
The maker of connected stationary bikes and treadmills was blindsided by the reopened economy and how it caused consumers to abandon working out in their living rooms in favor of returning to the gym or even the great outdoors.
As sales cratered, so did Peloton's stock, which lost 80% of its value after peaking at almost $130 per share. While consumers still were taking its online fitness classes, it was nowhere near as many as it had been, and its pricey exercise equipment was suddenly off-putting. Management even wondered aloud how to avoid being saddled with the "luxury" moniker, though equipment starting at $2,400 tends to make people think "want" rather than "necessity."
Now what
Wall Street seems to be having a change of heart, though. A new subscription-based business model, where consumers get a connected Bike and a workout-class subscription for a monthly fee -- rather than having to pay up front for the Bike -- could turn things around.
JMP Securities analyst Andrew Boone says he's seeing strong initial demand for the new pricing scheme. He likes that Peloton's new CEO, Barry McCarthy, is willing to think outside the box in developing different ideas, but Boone admits there's little visibility into revenue as website visits are down sharply year over year.
Similarly, Morgan Stanley analyst Lauren Schenk can't see very far ahead when it comes to Peloton, but still likes it industry-leading position and the fact that old-model subscribers don't seem to be abandoning the platform all that much.
That's why Bernstein analyst Aneesha Sherman likes the stock, telling investors in a research note Peloton's business is still healthy, its subscription-revenue stream is sticky, and the market it's targeting is large and growing. She gave the stock an outperform rating and assigned it a $40 price target, some 90% above where Peloton was trading at the time.
