Peloton (NYSE: PTON) would offer refurbished bikes at a discount as the company struggles with declining sales of its equipment. The stock is down over 75% this year, and its current market cap of $3 billion is a pale shadow of the $50 billion it peaked at in early 2021.
As part of its Peloton Certified Refurbished program, PTON would offer refurbished bikes with a one-year warranty. Previously, the bikes were also offered as a monthly rental.
Peloton was among the most popular Stay-at-Home winners. With gyms closed due to the COVID-19 restrictions, PTON’s home fitness equipment has been in high demand. The company has struggled to meet high demand, much like other stay-at-home businesses.
However, the macro environment has changed over the past year. A series of strategic missteps and responding to a fatal crash with Peloton gear hasn’t done the company well. Peloton was one of the worst-performing stocks in 2021 and 2022.
Earlier this year, John Foley, co-founder and CEO of Peloton, resigned as CEO. Barry McCarthy, who previously worked at Netflix, took over as CEO in February and has been trying to restructure the business ever since.
Peloton begins selling refurbished bikes as sales plummet
Peloton’s sales have slumped over the past year, and the once-short supply company now has excess inventory. Peloton reported revenue of $616.5 million for the first quarter of fiscal 2023.
Revenue declined 23% year over year and 9% sequentially, and fell short of the $650 million analysts were expecting. The company’s quarterly earnings more than halved from an all-time high of $1.26 billion.
Importantly, sales of connected products have declined significantly, falling 59% year over year in the fiscal first quarter. However, the subscription revenue was a silver lining. In Q1 FY23, subscription revenue increased 36% year over year to $412.3 million. For two consecutive quarters, Peloton generated more revenue from subscriptions than from product sales.
McCarthy attempts to reverse PTON
McCarthy attempted to reverse PTON. The company has closed several stores and laid off many of its employees to save money. Peloton also scrapped the Ohio factory where it was planning to invest $400 million to make products in the US. The company would now sell the plant to raise money.
Peloton has also completely shifted to third-party manufacturing. In another bid to move from a fixed-cost to a variable-cost model, the company also opted for third-party logistics services.
The company changed its business strategy and partnered with third parties to sell its products. Along with Amazon, it partnered with Dick’s Sporting Goods to sell its products.
The company has also expanded its partnership with Amazon to include Germany and the UK. Previously, Peloton only sold its gear through its own stores and website. Peloton also stores its bikes at all US Hilton hotels.
While PTON stock has plummeted, many analysts remain bullish and have maintained their Buy rating on Peloton stock.
Analysts are mixed on Peloton stock
Meanwhile, not all analysts think Peloton stock would recover. Peter Toogood, chief investment officer at investment platform Embark Group, says it’s “absolute nonsense” to buy stocks like Peloton.
He said the Fed’s rate hikes had changed the macro environment for loss-making companies and profitable companies would emerge from the turmoil as winners.
Most economists believe US inflation would decline in 2023 in part due to the high base year effect. High inflation took a toll on US stocks in 2022, but some assets can do well during periods of high inflation.
Even FAANG stocks have plummeted in 2022, and Amazon, Meta Platforms, and Netflix have all lost more than half their market caps over the year. Most analysts, meanwhile, see better days for FAANG stocks over the next year.
As for Peloton, the company is taking several steps to restructure the business and aims to be free cash flow positive in the second half of 2023. However, McCarthy has repeatedly warned that business transformation is not easy and the outcome cannot be guaranteed.
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Author: Mohit Oberoi
Mohit Oberoi is a freelance financial writer based in India. He has over 15 years of experience in the financial markets. He has written extensively about global markets over the past eight years and has authored over 8,000 articles. Mohit completed his MBA with finance as a major from…
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