The pandemic undoubtedly lit a fire under the Peloton (NASDAQ:PTON) share price in 2020. After a brief wobble in March last year, Peloton stock shot up by 750%. That ride took the share price from $20 to an all-time high of $170 in January 2021.
Investors seemed happy bidding the Peloton share price higher and higher. They must have believed Peloton bikes would fly off the shelves as gyms closed. There was also a belief that people would stick to working out at home even as gyms reopened.
The Peloton bike is a premium piece of kit. Once bought for nearly $2,000 with a few extras and put in a prominent place like the marketing encourages, a user might feel committed to getting the most out of it. For a rolling subscription, users get a dense schedule of workout sessions to join whenever they want. Workouts and progression are also ‘gamified’ with leaderboards, medals, and achievements, and the chance to compete against other subscribers. Instructors will also call out riders’ names to encourage them after hitting significant milestones, which is motivational and might prompt a user to fight to hit the next one. This all sounds good in principle for Peloton, but did it deliver?
Are the wheels coming off?
For the 2021 financial year, which ended 30 June, Peloton took $4.02bn in revenue, soundly beating the prior year’s $1.83bn. Peloton bikes did fly off the shelves during the pandemic. But the Peloton share price has collapsed since that all-time high in January 2021.
The last quarter of the fiscal year 2021 showed a drop in revenue. Peloton reported operating and net losses in the last two quarters of 2021. Previously Peloton had been profitable. Investors might have taken this as a sign that Peloton was not entirely convincing people that paying over $1,000 for a home exercise bike and an ongoing subscription was worth it as gyms reopened.
Let’s face it, without the subscription for classes and functionality, the ‘just a bike with an iPad’ moniker does ring true for Peloton. And what was the actual market size for Peloton, given the high price point for entry and the ongoing subscription to unlock its full features? These types of questions likely fed the malaise of investors and helped drag the Peleton share price as low as $81 in October 2021.
There was a further shock for Peloton investors when the first quarter of 2022 results missed analyst targets, and management cut full-year guidance sharply. Since their release on 5 November, the Peloton share price has slumped to around $50, giving up much of last year’s gains.
What next for the Peloton share price?
Investors have underestimated the impact of reopening after the pandemic on Peleton. The size of the core bike market was probably overestimated, and it may, in fact, already be saturated.
Peloton is making moves to address these issues. The cheaper Peloton Guide, which connects to televisions, is being released. The Peloton Tread running machine is starting to sell. People are signing up for the app alone, which gets them a lot of classes for a reasonable price. But analysts are slashing price targets for Peloton and there’s now the lure of getting out of the house to exercise with others in person. I think the Peloton share price will struggle unless it shows that demand can persist in a post-pandemic world.
James J. McCombie does not own shares in Peloton Interactive. The Motley Fool UK has recommended Peloton Interactive. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
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