As of 12:39 p.m. ET on Friday, shares of Peloton Interactive (PTON -1.43%) were down 16.4% week to date, according to data provided by S&P Global Market Intelligence. For context, the S&P 500 index was down 1.6%.
Peloton continues to tinker with its pricing strategy to try to improve operating performance, but investors are clearly confused about what's in store for Peloton in the near term.
The company announced the new pricing changes on April 14. The price of the Peloton Bike and Tread are coming down, while the price of all-access membership to workout classes is increasing by $5 to $44 per month.
Quarterly revenue has leveled off in recent quarters and losses on the bottom line are mounting. In the quarter that ended Dec. 31, 2021, revenue grew 6% year over year to reach $1.1 billion, but the company reported a net loss of $439 million.
Reducing the price of hardware could lift demand for connected fitness products, which made up 70% of the business last quarter, while the increase in subscription fees could help the company get closer to reaching breakeven on the bottom line.
New CEO Barry McCarthy, who joins Peloton after working at Netflix and Spotify Technology, brings over a load of experience from these subscription services. It's good to see management trying new pricing strategies to widen the appeal of its products, while also finding the right balance between growing revenue and achieving profitability.
Citigroup believes the stock is a buy. The bank recently upgraded Peloton shares with a $36 price target. That would be nearly double Peloton's current stock price of $20 per share.
At a price-to-sales ratio of 1.46, the stock has low expectations for growth and profit margin, which could make it a good value if the company performs better than expected. But one headwind in 2022 is consumers getting pinched by inflation and how that might lower the demand for Peloton's products.