What Happened:
Shares of exercise equipment company Peloton (NASDAQ:PTON) fell 5.8% in the morning session after CNBC reported that the company is no longer offering the unlimited free membership tier for its fitness app. Commenting on the free tier option at a recent Morgan Stanley conference, CFO Elizabeth Coddington highlighted some of the reasons for the change in direction, stating, "...and what we quickly found out was that that free tier was cannibalizing our funnel and conversion to free trial and then to pay. So what did we do? We've redirected our traffic more towards free trial in order to drive higher conversion of the app."
This is likely sparking renewed fears about demand for the company's products. Was the free tier cannibalizing the other funnels and tiers or is demand simply sluggish? Even bigger picture, most fitness products have ended up being fads, left to collect dust in basements or used as clothing racks. Could Peloton face a similar fate or will it be the exception? The debate continues based on this news.
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 a little volatile and over the last year have had 65 moves greater than 5%.
The previous big move we wrote about was about a day ago, when the company dropped 5.9% as the major indices declined (Nasdaq down -1.70%, S&P 500 down -1.1%, Dow down -0.61%), while yields soared. Geopolitical tension heightened following reports on Saturday, April 13, 2024, that Iran launched drones and missiles at Israel, driving uncertainty about possible disruption to global trade and commerce should the tension escalate. Also, the Census Bureau report revealed March 2024 retail sales rose 0.7% compared to the previous month (ahead of market expectations for a 0.3% increase), suggesting consumption is strong amidst recent inflation concerns.
Prior to these reports, market volatility had picked up after the March 2024 CPI (Consumer Price Index - a gauge of the average price consumers pay for goods and services) report revealed inflation came in slightly hotter than expected, adding to fears that the Fed could delay rate cut plans in 2024.
As a reminder, the driver of a stock's value is the sum of its future cash flows discounted back to today. With lower interest rates, investors can apply higher valuations to their stocks. No wonder so many in the investment community are optimistic about 2024. We at StockStory remain cautious, as following the crowd can lead to adverse outcomes. During times like this, it's best to own high-quality, cash-flowing companies that can weather the ups and downs of the market.
Peloton is down 46.3% since the beginning of the year, and at $3.13 per share it is trading 68.4% below its 52-week high of $9.90 from April 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 $121.31.
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