Why Peloton (PTON) Stock Is Trading Lower Today

Jabin Bastian /
2024/05/02 12:57 pm EDT

What Happened:

Shares of exercise equipment company Peloton (NASDAQ:PTON) fell 14.5% in the morning session after the company reported first-quarter results. The big news here isn't related to the quarter's financials. Peloton announced that CEO Barry McCarthy (formerly of Netflix and Spotify) will be stepping down just over two years after he took over from founder John Foley. The company also announced a restructuring program to cut costs, and this will include laying off 15% of its workforce or roughly 400 employees. With regards to the numbers, they weren't good. EPS missed and its operating margin fell short of Wall Street's estimates. The company lowered full year revenue guidance. Overall, the results could have been better.

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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 16 days ago, when the company dropped 5.8% after CNBC reported that the company is no longer offering the unlimited free membership tier from its fitness app from 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.

Peloton is down 50.7% since the beginning of the year, and at $2.87 per share it is trading 70.7% below its 52-week high of $9.78 from July 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 $111.41.

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