Shares of Peloton Interactive (NASDAQ: PTON) are trading almost 12% lower in early market trading today. PTON stock has, in fact, been among the worst performing tech stocks in the U.S., falling 95% from all-time highs, valuing the company at $3 billion by market cap.
It just announced the departure of its leadership team that includes John-Foley, Peloton’s co-founder. Foley co-founded Peloton 10 years back and is credited with building the world’s largest interactive fitness platform.
While this news spooked investors, PTON stock was already a high-risk bet for fundamental investors, and here’s why.
Peloton is an unprofitable company
Peloton went public in Q4 of 2019 at a price of $29 per share. The COVID-19 pandemic acted as a massive tailwind for the company allowing it to increase sales from $1.825 billion in fiscal 2020 to $4 billion in fiscal 2021 (ended in June).
However, its sales fell off a cliff in the last 12 months declining over 10% to $3.5 billion. Moreover, Peloton’s operating loss widened to $1.64 billion in fiscal 2022 compared to a loss of $187.9 million in the year-ago period. Its net loss also widened from $0.64 per share to $8.74 per share in this period due to impairment and restructuring charges.
PTON stock price touched a record high of $162 in December 2020 and is currently priced at $9.88, wiping off massive investor wealth in the process.
Peloton rose in popularity amid COVID-19 as a fitness equipment maker. It has integrated interactive technology features allowing subscribers to take live classes and compare themselves with other subscribers in the class.
But the reopening of the economy meant demand for its bikes weakened considerably in the last year. Further, analysts expect sales to fall by almost 15% to $3.06 billion in fiscal 2023.
Can PTON stock price stage a comeback in fiscal 2023?
A key metric that needs to improve for Peloton is the monthly active workouts per subscriber. It touched a high of 26 in Q3 of fiscal 2021 and stood at just 14.8 in the June quarter. As normalcy returns, Peloton will struggle to replace legacy gym outlets and is no longer a substitute for outdoor exercise routines.
Due to the lower number of workout sessions, Peloton is also experiencing an uptick in subscriber cancellations.
Peloton will also be hoping its recent deal with Amazon (NASDAQ: AMZN) will help it accelerate sales once again. Amazon will list Peloton’s products on its website and earn revenue on each unit sold.
Peloton claimed there are over 500,000 proprietary product searches each month, unlocking another revenue stream for the company.
Additionally, Peloton is now offering its Bike and Bike+ under a pricing structure known as FaaS or fitness-as-a-service. Here, the customer pays a rental fee instead of the entire equipment cost.
The customer can then choose to rent out the equipment each month or pay a one-time buyout fee. Peloton stated the FaaS model is increasing sales with a rental fee of $89 each month.
Is Peloton stock a buy right now?
Peloton needs to find a way and reduce its cost structure. In fiscal 2022, it posted a loss of $2.8 billion, and it now has $1.2 billion in cash left on its balance sheet. The company has closed in-house manufacturing operations, reduced marketing spending, and narrowed its employee base in the last few months.
Peloton aims to achieve breakeven cash flow in the last two quarters of the current fiscal year. Investors can expect PTON stock price to fall further if these lofty expectations are not met.