What happened

Shares of the exercise equipment company Peloton (PTON 4.75%) traded roughly 12.3% lower as of 11:33 a.m. ET today after analysts at Morgan Stanley put out a note suggesting that the company saw lower web traffic during its third fiscal quarter.

So what

In a research note, Morgan Stanley analyst Lauren Schenk said that web traffic for Peloton fell roughly 27% in its third fiscal quarter on a year-over-year basis, largely because it didn't have the same amount of promotional spend as it did during its second fiscal quarter. Schenk did, however, say that the company typically sees more turnover among customers a few months after they launch a Peloton subscription.

"The company struggled to maintain the momentum observed during the heavily promotional holiday season," Schenk said. "Although web traffic is still above pre-COVID levels, the 2-y/y trends have continued to deteriorate, failing to find the stability needed for a return to growth, in our view."

Schenk added that this puts Peloton in a difficult position of choosing between lower earnings or a drop in revenue, both of which investors are likely to poke holes in. On a more positive note, Schenk does think the company will beat its prior guidance of 47,000 to 57,000 net subscription adds in its third fiscal quarter.

Now what

Peloton did incredibly well during the pandemic as consumers exercised at home a lot more, making the company's bikes and workout app an ideal purchase. Consumers also had excess savings built up, and the brand really seemed to resonate with customers.

However, management made the mistake of believing the environment and demand for Peloton bikes and workout equipment during the early months of the pandemic would be the new normal and bought too much inventory, which they have now been selling at a loss.

It's certainly not good to see search traffic down because the brand and subscription business seems like the main driver for the company right now. I'm also not certain that things will get any better if the economy tips into a recession, because there are cheaper alternatives for exercising. I plan to avoid the stock for now until the business has better direction.