Shares of exercise equipment company Peloton (NASDAQ:PTON) fell 20.8% in the morning session after the company reported second-quarter results with EPS falling below Wall Street's expectation, though revenue beat by a narrow margin. However, revenue guidance for next quarter missed Wall Street's estimates, with management highlighting that "our biggest challenge continues to be growth, at scale." In addition, while the company previously expected to break even on a free cash flow basis in fiscal year 2024, it now expects to fall short of the goal and only generate positive free cash flow in Q4 (vs. $(74) million in 4Q23).
Other challenges include the failure of initiatives such as the premium co-branded Bike experiment with the University of Michigan, which resulted in fewer sales than anticipated, and shortcomings in customer service during the holiday season, prompting a reboot. Overall, this was a mediocre quarter for Peloton.
The stock market overreacts to news, and big price drops can present good opportunities to buy high-quality stocks. Is now the time to buy Peloton? Access our full analysis report here, it's free.
What is the market telling us:
Peloton's shares are very volatile and over the last year have had 66 moves greater than 5%. But moves this big are very rare even for Peloton and that is indicating to us that this news had a significant impact on the market's perception of the business.
Peloton is down 26.5% since the beginning of the year, and at $4.27 per share it is trading 74.8% below its 52-week high of $16.98 from February 2023. Investors who bought $1,000 worth of Peloton's shares at the IPO in September 2019 would now be looking at an investment worth $165.95.
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