The Peloton (NASDAQ: PTON) stock price crashed by more than 20% in premarket trading after the company’s disappointing earnings. The stock, which closed at $14.3 on Monday, fell to as low as $11, bringing the firm’s market cap to less than $5.
Peloton weak earnings
Peloton had a significantly weak third fiscal quarter as its business continued slowing down. In a statement, the company said that its total revenue declined by 23.5% year on year to $964 million. This revenue slowdown was worse than what analysts were expecting.
At the same time, the company said that its Connected Fitness subscriptions increased by 195k in the quarter. This increase brought the total additions to about 2.96 million. Its churn of 0.755 is still low even after the company decided to add prices. Total members rose to 7 million.
Additionally, the company said that the average number of monthly workouts per user was 18,8, which was about 28% below the same period in 2021. The management attributed this slowdown to the Covid bump that happened last year.
The Peloton stock price also declined after it provided weak forward guidance. It expects to make between $675 million and $700 million. This guidance was lower than the previous estimate of $823 million.
Additionally, the firm increased its EBITDA loss guidance to between $120 million and $115 million. The company will also raise cash from JP Morgan and Goldman Sachs. By raising cash in form of loan, the company will prevent diluting existing shareholders.
Is Peloton a good investment?
So, is Peloton a good investment? To a large extent, Peloton has some positive attributes like its large market share and strong competitive advantage. It is also a good acquisition target for companies seeking to enter the fitness industry. Also, it seems like it has become dirt cheap following the dramatic crash from $175 to $10.
Its recent decision to slash prices of its key products is also a good catalyst since it will incentivize more subscriptions.
However, Peloton is a risky business for a number of reasons. For example, it has a large inventory and is facing substantial competition from the likes of Mirror. Also, the company’s growth has slowed dramatically.
Therefore, there is a likelihood that the Peloton stock price will remain being under pressure for a while as interest rates rise.