Analyst Downgrades Peloton and Lowers Price Target
Peloton Interactive Inc (PTON) has received a downgrade from B of A Securities analyst Curtis Nagle, who downgraded the stock from Neutral to Underperform and cut the price target from $6.50 to $4.15. Nagle believes that there are significant risks to Peloton’s revenue, including churn resulting from declining platform engagement and a subscriber base that is reaching its average lifetime. The analyst’s revenue estimates for FY24 and FY25 are 6% and 14% below the consensus.
Increased Churn and Weak YoY Trends Raise Concerns
Nagle’s analysis of sales and transaction data suggests a potential 3.6ppt sequential deceleration in YoY trends, compared to the 1ppt acceleration expected by the Street. This indicates potential challenges for Peloton’s growth. Furthermore, Nagle points out a significant drop in the number of classes taken per subscriber based on data for top Peloton cycling instructors. This decrease has a -90% correlation with higher churn rates since the third quarter of 2021.
Rising Churn Risk and Unimpactful Growth Initiatives
According to Nagle, as more members reach the average subscriber lifetime in 2024, the risk of churn is expected to increase. Using a 60-month average lifetime, the analyst projects a 2.6x increase in members reaching this threshold compared to 2023. This places more pressure on Peloton’s growth initiatives, which have yet to produce significant results. Nagle’s estimates for net subscribers in FY24 and FY25 are -63k and -119k, while the Street expects +6k and +88k, respectively.
Projections for Revenue and Earnings
Based on his analysis, Nagle predicts significant revenue losses for Peloton. He projects FY24 revenue of $2.62 billion and an EPS loss of $(0.39), lower than his previous projections of $2.81 billion and $(0.26). For FY25, he estimates revenue of $2.55 billion and an EPS loss of $(0.22), revised from $2.92 billion and $0.02, respectively.
Following the downgrade, Peloton’s stock price traded higher by 3.13% at $4.95 on Thursday.
In this article, we discuss the recent downgrade of Peloton Interactive Inc (PTON) by B of A Securities analyst Curtis Nagle. Nagle lowered his rating from Neutral to Underperform and reduced the price target for the stock. He believes that the company faces significant risks to its revenue, primarily due to increased churn resulting from declining platform engagement and an aging subscriber base. Nagle’s revenue estimates for FY24 and FY25 are notably lower than the consensus figures.
One concerning trend highlighted by Nagle is the weak year-over-year (YoY) trends in Peloton’s sales and transactions. While the Street expects a 1ppt acceleration, Nagle’s analysis suggests a potential 3.6ppt sequential deceleration. This discrepancy raises concerns about the company’s growth potential.
Furthermore, Nagle’s analysis of class data for top Peloton cycling instructors reveals a sharp drop in the number of classes taken per subscriber. This decrease is closely correlated with higher churn rates since the third quarter of 2021. As more members reach the average subscriber lifetime in 2024, Nagle expects churn risk to increase further, putting additional pressure on Peloton’s growth initiatives. However, these initiatives have yet to produce significant results.
Nagle’s projections for net subscribers in FY24 and FY25 are significantly lower than the Street’s expectations. He estimates a decline of -63k and -119k subscribers, while the Street predicts an increase of +6k and +88k, respectively. These projections highlight the challenges Peloton may face in maintaining its subscriber base.
In terms of financial performance, Nagle predicts substantial revenue losses for Peloton. His projections for FY24 and FY25 indicate revenue of $2.62 billion and $2.55 billion, respectively. Furthermore, he expects an EPS loss of $(0.39) for FY24 and $(0.22) for FY25. These figures reflect a downward revision from his previous estimates.
Following the downgrade, Peloton’s stock price saw a modest increase, trading at $4.95, up 3.13%, on Thursday. It remains to be seen how the market will react to the analyst’s insights and the potential challenges that lie ahead for the company.