What happened
Shares of fitness equipment maker Peloton Interactive (PTON -2.24%) are down 2% as of 12:26 p.m. ET on Monday, having partially recovered from an early dip of a little more than 6%. The setback follows a firm gain on Friday prompted by the announcement of cost-cutting measures and price increases.
So what
Think of it as a case of buyer's remorse, with a bit of marketwide lethargy also playing a role. With a full weekend to think about Friday's news, in addition to rekindled worries that a recession remains a distinct possibility, discretionary stocks like Peloton Interactive remain vulnerable.
On Friday, Peloton announced price increases for its Peloton Bike+ and Tread treadmill in several key markets. In the United States, for perspective, the cost of the Bike+ will be increasing from $1,995 to $2,495, while the Tread's sticker price will grow from $2,395 to $3,495. The price increase follows July's decision to entirely outsource production of its fitness equipment to third-party manufacturers as part of an effort to cull costs. That news immediately preceded a reversal of the stock's downtrend that ultimately unwound more than 90% of its peak value reached in early 2021, during the worst of the COVID-19 pandemic.
Separately, Reuters reported on Friday that a company memo indicated job cuts are looming. All told, roughly 800 jobs are on the chopping block, and some of Peloton's 86 retail stores could be slated for closure.
Investors celebrated the announcements, believing these measures will put the company on a path back toward profitability, which was only achieved briefly in late 2020 when stuck-at-home consumers were buying fitness equipment in droves.
Now what
It would be easy to chalk up today's weakness as just bit of profit taking after Friday's 13.6% bullish romp. The market itself is also not in the same bullish mood it was in as of last week. Thus, many investors may still be seeing more upside ahead for the stock. And, maybe that's what's in the cards.
More realistically, though, there's more working against Peloton Interactive here than there is working for it, despite the stock's rally from last month's lows.
Peloton is clearly on the defensive here. Cost-cutting isn't an indication of strength, particularly when it undermines an organization's capacity to sell its product ... like store closures, or shedding sales and support staff. Likewise, while punting manufacturing of your product to third parties may reduce costs, it also makes it more challenging to control quality, as well as control exactly when the product is produced. Factor in the lingering prospect that the economy could continue to show signs of slowing -- crimping demand for high-end exercise equipment -- and Peloton stock brings more risk than reward potential to the table at this time.
