Key Stats for Peloton Stock
- 1-Day Price Change for Peloton stock: 5%
- $PTON Share Price as of Nov. 7: $7.66
- 52-Week High: $10.90
- $PTON Stock Price Target: $10.26
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What Happened?
Peloton (PTON) stock surged over 14% on Friday after the connected fitness company delivered its second consecutive profitable quarter and raised full-year guidance.
In Q3, Peloton reported a surprise net income of $13.9 million for the quarter ended September 30, compared to a $900,000 loss a year earlier. Adjusted earnings of $0.03 per share beat expectations, while revenue of $551 million topped the $540 million consensus.
The real catalyst for Peloton stock came from the company’s outlook. Management guided fourth-quarter revenue to $665 million to $685 million, up slightly year-over-year and ahead of the $665 million Street estimate.
More importantly, Peloton raised its full-year adjusted EBITDA guidance by $25 million on both ends to a range of $425 million to $475 million, well above analyst expectations.
The quarter wasn’t without challenges as Peloton announced a voluntary recall of 833,000 original Bike+ units after receiving three reports of seat posts breaking during use.
This follows a similar recall of the base Bike model in 2023, which cost Peloton $13.5 million in the quarter, contributing to a 30-basis-point decline in gross margin.
Despite the recall headwind, the company exceeded its profitability expectations, with free cash flow coming in at $67 million, significantly outperforming the slightly negative cash flow management expected.
Peloton also raised its minimum full-year free cash flow target by $50 million to at least $250 million, driven by lower tariff rates and faster realization of cost savings.
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What the Market Is Telling Us About Peloton Stock
The positive reaction to Peloton stock suggests investors are gaining confidence in CEO Peter Stern’s turnaround strategy.
Since taking over in January, Stern has focused on returning the company to profitability while positioning it for future growth beyond connected cardio equipment.
The company’s October 1 product launch represents the most significant update in Peloton’s history. The new Cross Training Series features AI-powered movement tracking cameras that count reps and correct form in real-time, 360-degree swivel screens for seamless transitioning between cardio and strength workouts, and voice control capabilities.
Management noted a favorable mix shift toward premium products, including the Plus line with advanced computer vision features.
Beyond hardware, Peloton is expanding its wellness ecosystem and has launched Peloton IQ, an AI-powered personalized coaching platform available to all members.
It acquired Breathwrk, a breathing exercise app, and announced partnerships with the Hospital for Special Surgery and Respin Health for menopause care.
These initiatives aim to address broader wellness categories beyond cardio, tapping into what CFO Liz Coddington described as a $2 trillion U.S. wellness economy.
Distribution is also expanding rapidly as Peloton now has 10 micro stores in the U.S., up from one before the quarter, plus a new retail partnership with Johnson Fitness & Wellness that gives the company a physical presence in 46 states.
The commercial business unit is showing strong performance, with the new Pro series targeting hotels and residential buildings.
However, there are headwinds to watch out for, as connected Fitness subscriptions fell 6% year-over-year to 2.732 million, and management expects churn to tick up in the second quarter following the October subscription price increase.
The broader connected fitness market is still declining at a low single-digit rate, though the pace of decline is decelerating.
The recall also introduces uncertainty. Based on the 2023 bike recall, management incorporated a slight headwind to churn in second-quarter guidance due to elevated subscription pauses.
However, the revenue impact is expected to be immaterial, as the recall only affects bikes manufactured between December 2019 and July 2022 that are no longer for sale.
From a balance sheet perspective, Peloton stock is in much better shape. Net debt decreased 49% year-over-year to $395 million.
The company plans to pay down $200 million of convertible notes due in February 2026 and is evaluating a refinancing of its $1 billion term loan to lower its cost of capital.
Management believes it has more cash on the balance sheet than needed to run the business, opening up potential capital allocation opportunities.
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Disclaimer:
Please note that the articles on TIKR are not intended to serve as investment or financial advice from TIKR or our content team, nor are they recommendations to buy or sell any stocks. We create our content based on TIKR Terminal’s investment data and analysts’ estimates. Our analysis might not include recent company news or important updates. TIKR has no position in any stocks mentioned. Thank you for reading, and happy investing!
