Peloton (NYSE: PTON) would offer refurbished bikes at a discount as the company grapples with falling 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 that it was at the peak in early 2021.
Under its Peloton Certified Refurbished program, PTON would offer refurbished bikes with a one-year warranty. It previously also started offering the bikes on a monthly rental.
Peloton was among the most popular stay-at-home winners. As gyms were closed due to the COVID-19 restrictions, PTON’s home fitness equipment were in high demand. The company struggled to meet the high demand, pretty much like other stay-at-home companies.
However, the macro environment has changed over the last year. A series of strategic missteps and its response to a fatal crash involving Peloton equipment did no good for the company. Peloton was among the worst-performing stocks in 2021, as it is in 2022.
Earlier this year, Peloton’s co-founder and CEO John Foley quit as the CEO. Barry McCarthy, who has previously worked with Netflix, took over as the CEO in February and has since been trying to restructure the business.
Peloton to Start Selling Refurbished Bikes as Sales Sag
Peloton’s sales have sagged over the last year and the once supply-constrained company is now left with excess inventory. Peloton reported revenues of $616.5 million in the fiscal first quarter of 2023.
The revenues fell 23% YoY and 9% sequentially and fell short of the $650 million that analysts were expecting. The company’s quarterly revenues have more than halved from the all-time high quarterly revenue of $1.26 billion.
Importantly, its Connected Products revenues have dropped considerably and plummeted 59% YoY in the fiscal first quarter. However, its Subscription revenues have been a silver lining. In Q1 FY 23, its Subscription revenues increased 36% YoY to $412.3 million. For two consecutive quarters now, Peloton got more revenues from subscriptions than product sales.
McCarthy is Trying to turn around PTON
McCarthy has been trying to turn around PTON. The company has closed several stores and laid off many of its employees in order to preserve cash. 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.
Peloton has also fully shifted to third-party manufacturing. It also opted for third-party logistics service in yet another bid to move from a fixed cost to a variable cost model.
The company has changed its business strategy and has 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 extended its partnership with Amazon to Germany and the UK. Previously, Peloton used to sell its equipment only through its own stores and website. Peloton is also putting its bikes in all the Hilton Hotels in the US.
While PTON stock has plunged, many analysts continue to remain bullish and have maintained their buy rating on Peloton stock.
Analysts are Mixed on Peloton Stock
Meanwhile, not all analysts believe that Peloton stock would recover. Peter Toogood, chief investment officer at investment platform Embark Group believes that it’s “absolute nonsense” to buy stocks like Peloton.
He said that Fed’s rate hikes have changed the macro environment for loss-making companies and profitable companies would come out as winners amid the turmoil.
Most economists believe that US inflation would come down in 2023 partially because of the high base year effect. High inflation took a toll on US stocks in 2022 but some investments can do well in periods of high inflation.
Even FAANG stocks have crashed in 2022 and Amazon, Meta Platforms, and Netflix have lost over half of their market cap in the year. Most analysts meanwhile see better days ahead for FAANG stocks next year.
As for Peloton, the company is taking several steps to restructure the business and intends to become free cash flow positive in the second half of 2023. However, McCarthy has warned on multiple occasions that corporate turnarounds are not easy and the outcome cannot be guaranteed.
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