On Monday, BofA Securities adjusted Peloton Interactive's (NASDAQ:PTON) financial outlook, reducing the company's price target to $3.25 from the previous $4.00. Despite this adjustment, the firm maintained its Underperform rating on the stock.
Peloton, known for its interactive fitness products, is scheduled to report its third fiscal quarter 2024 earnings on May 2, before the market opens, followed by a conference call at 8:30 am ET.
BofA Securities anticipates the company's revenue and net Connected Fitness subscribers to be roughly in line with Wall Street estimates, with a slight increase in revenue by 0.4% and a marginal decrease in subscribers by 0.1%. This projection accounts for weaker hardware sales, which may be slightly offset by Peloton's rental and Fitness-as-a-Service (FAAS) programs.
In the second fiscal quarter of 2024, Peloton's management highlighted better-than-expected demand for the Tread+ product, which could potentially aid cash flow as the company works to sell down its existing inventory.
Despite the introduction of new initiatives, such as a partnership with TikTok launched in January, the analyst expressed continued caution regarding subscriber growth, which has not yet shown signs of acceleration.
According to a CNBC report, Peloton removed its free tier subscription in April, a feature that was launched in May 2023 but failed to convert users into paid subscribers. Additionally, the company discontinued a co-branded collegiate program. The analyst suggests that if net subscriber growth remains stagnant, Peloton might consider further cost reductions in research and development (R&D) and general and administrative (G&A) expenses.
Peloton is also under pressure to achieve positive cash flow, which would likely be well-received by the market and improve the company's position for refinancing its $1.7 billion debt. However, the analyst noted that a return to sustained user growth, combined with cost efficiency and the extension of debt maturities, would be necessary for a significant improvement in investor sentiment and the company's share price.
InvestingPro Insights
As Peloton Interactive (NASDAQ:PTON) braces for its upcoming earnings report, the InvestingPro platform provides a deeper look into the company's financial health and market performance. With a market capitalization of $1.16 billion, the company's financial situation appears challenging, as reflected in the negative P/E ratio of -1.30, suggesting that investors are concerned about the company's profitability. Peloton's revenue for the last twelve months as of Q2 2024 stands at $2.73 billion, yet it has experienced a decline of 10.55%, signaling potential headwinds in sales growth.
InvestingPro Tips highlight several concerns, including Peloton's significant debt burden and its difficulty in making interest payments, which is particularly troubling given the company's negative free cash flow yield. With analysts revising their earnings estimates downwards and no dividends paid to shareholders, the financial outlook remains cautious. It's also worth noting that Peloton's stock price has been highly volatile, with a 26.25% drop over the last month and a 64.41% decrease over the last year, underscoring the market's uncertainty about the company's future.
Investors looking for additional insights can find more InvestingPro Tips on the platform, which currently lists 15 more tips for Peloton Interactive. These tips could provide valuable information for those considering the stock, especially ahead of the earnings report. For those interested in a deeper analysis, use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
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