Peloton stock, which recently fell to its all-time lows, is trading higher in US premarket price action today. The company has announced that it would exit its own manufacturing operations and totally shift to a third-party production model.
Today’s announcement is yet another step by the home fitness equipment company to turn around its business. While its business boomed in 2020 amid the lockdowns, multiple issues have hit Peloton since the last year, including the fatal accident involving one of its equipment.
Peloton is now expanding its partnership with Taiwanese manufacturer Rexon Industrial Corp to produce its equipment. Commenting on the decision, Peloton said, “The shift is a natural progression in Peloton’s strategy to simplify its supply chain and focus on technology and best-in-class content to continue driving the business forward as the leading global Connected Fitness company.”
Multiple factors were putting pressure on Peloton stock and it has been in a freefall since 2021. While there has been a broad-based sell-off in stay-at-home stocks, company-specific factors have also impacted Peloton. The company’s sales have been falling while losses have swelled. It has also been laying off employees amid the slump. Earlier this year, its co-founder John Foley also quit the company. Last month, it also appointed a new CFO.
Peloton has been looking at different ways to revive its growth as the once supply-constrained company now finds itself demand constrained. It is working on a new subscription model where consumers can buy its bikes with a monthly subscription instead of the upfront payment.
Peloton Believes Third Party Manufacturing Would Revive its Fortunes
Previously, Peloton also scrapped the Ohio factory, where it was set to invest $400 million to manufacture products in the US. The company would now be selling the plant in order to raise cash.
Commenting on the exit from the manufacturing business, Peloton CEO Barry McCarthy said, “Today we take another significant step in simplifying our supply chain and variablizing our cost structure – a key priority for us.”
He added, “We believe that this along with other initiatives will enable us to continue reducing the cash burden on the business and increase our flexibility. Partnering with market-leading third-party suppliers, Peloton will be able to focus on what we do best – using technology and content to help our 7 million Members become the best versions of themselves.”
Meanwhile, Wall Street analysts haven’t been too impressed with Peloton’s turnaround efforts so far. Over the last year, many analysts have downgraded the stock while almost all have lowered their target prices.
Former stay-at-home winners like Peloton, Chegg, Teladoc Health, and Zoom Video Communications have been feeling the heat as the economies have reopened and these companies are finding it hard to repeat the stellar growth of 2021. However, some analysts have been advising investing in these beaten-down stocks.
FAANG Stocks Have Also Fallen in 2022
In the FAANG space also, Netflix and Amazon, which saw high growth amid the lockdowns, are now witnessing a growth slowdown. Amazon’s sales growth fell to a multi-year low in the first quarter of 2022. Netflix also lost subscribers in the quarter for the first time in a decade. The streaming giant is now looking at cracking down on shared passwords and an ad-supported model to revive its growth. Growth stocks have anyways been out of favor with investors amid rising interest rates.
Value stocks have outperformed amid the turmoil. PepsiCo stock is trading higher today after the company posted better than expected earnings in the second quarter of 2022 despite currency and inflation headwinds. It also raised its guidance. In contrast, Peloton stock has slumped after its last few earnings calls.
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