Last week threw up several surprises for investors like myself. On Thursday, the Bank of England shocked markets by not raising interest rates. Then to close off the week, Peloton Interactive (NASDAQ:PTON) released quarterly results that were pretty dismal. Peloton shares dropped by 35% on Friday to close at $55.64. With a move of this size, could it be a good time for me to buy?
A large slump for one day
First, let’s take a deeper look at the results. They were for the quarter ending September, Peloton’s fiscal first quarter for 2022. Revenue might have been up 6% versus the same quarter last year, but it was down 16% versus the previous quarter. If I take a look at the revenue chart over several quarters, it doesn’t paint a great picture. From seeing quarter-on-quarter revenue growth throughout 2020 and the start of 2021, the past two quarters have seen numbers heading south.
Another negative taken from the report was the net loss of $376m. This tied in to the revision lower of future guidance for the full year. Peloton now expects the company to make an adjusted EBITDA loss of between $425m and $475m.
Even though Peloton shares fell significantly on the release of the news, there were some positives to take from it though. For example, Connected Fitness subscriptions rose by 87% year-on-year. This figure also grew on the previous quarter, and is one metric that’s still showing growth. It’s also maintaining an outlook for a gross profit margin of 32%. This is a healthy projection, as long as costs can be kept under control.
A bleak outlook going forward
Although the figures for the past quarter weren’t great, I think the main issue for Peloton investors is the outlook going forward. Even with the net loss, if the business expected a bounce-back, I don’t think the shares would have fallen by 35% on the day. The fact that the annual revenue forecast was cut by much as $1bn is a bigger concern.
In some cases, this was inevitable. The firm even commented that “we anticipated fiscal 2022 would be a very challenging year to forecast, given unusual year-ago comparisons, demand uncertainty amidst reopening economies, and widely-reported supply chain constraints and commodity cost pressures.”
Yet in my opinion, Peloton investors weren’t expecting things to look this bleak. Whatever natural decline investors were thinking was coming due to us all getting back towards normal life clearly was less than the results showed.
Steering clear of Peloton shares
I shouldn’t forget that Peloton is still up massively from the IPO level of $29, which was only a couple of years ago. Over a one-year period, the shares are down 56%. Given that the company is loss-making, it’s hard to accurately price a fair value when looking at the traditional P/E ratio.
Overall, my gut feeling is that Peloton shares aren’t worth buying at the moment given the gloomy outlook. Therefore, I’d stay away and look elsewhere for better opportunities.
jonathansmith1 has no position in any share mentioned. 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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