On Thursday, Canaccord Genuity maintained a Hold rating on Peloton Interactive (NASDAQ:PTON) stock, with a steady price target of $10.00. The company's fiscal Q1 report showed results that met and slightly exceeded market expectations, with consumer financing program (CFP) subscribers aligning with forecasts, total revenue surpassing consensus, and adjusted EBITDA outperforming guidance.
Peloton undertook various measures during the quarter to enhance its unit economics. These included price increases for its Bike and Bike+ in international markets, as well as for the Row product in North America. The company also scaled back on promotional activities and kept a tight rein on marketing expenditures, which resulted in the lowest quarterly sales and marketing expense since FY20. Peloton's strategy is to focus on acquiring profitable subscribers as it heads into the holiday season, although it anticipates an increase in media spending.
In terms of product development, Peloton is exploring new features and products like the Strength+ App, Game-Inspired Fitness experiences, and Personalized Plans to boost user engagement. Noteworthy is the conclusion of Peloton's CEO search, culminating in the appointment of former Ford (NYSE:F) executive Peter Stern. Stern is expected to adopt a balanced approach to growth and profitability.
Looking forward, Peloton's Q2 outlook aligns with consensus expectations for its top-line metrics, while profitability projections have been set higher. The company has maintained its FY25 guidance but has adjusted its adjusted EBITDA outlook to reflect the strong performance in Q1. Peloton now aims for approximately $125 million in free cash flow (FCF) by FY25.
Shares of Peloton have rallied following the positive margin progress and the new CEO appointment. However, due to the recent stock surge and ongoing uncertainties regarding subscriber base stabilization, Canaccord Genuity has decided to maintain the Hold rating for the time being.
In other recent news, Peloton Interactive has announced Peter Stern as its new CEO, starting from 2025. Stern, with a history of executive roles at Ford Integrated Services, Apple (NASDAQ:AAPL), and Time Warner Cable, is expected to join Peloton's Board. In the interim, Karen Boone will serve as the sole Interim CEO and President until the end of 2024.
Peloton has also entered into seasonal retail partnerships with Costco (NASDAQ:COST) and Truemed, aiming to broaden its market reach. The collaboration with Costco will make Peloton's Bike+ available in 300 Costco locations across the U.S. and online, while the partnership with Truemed enables U.S. customers to purchase Peloton's range of exercise equipment using pre-tax Health Savings Account (HSA) or Flexible Spending Account (FSA) dollars.
The company reported stronger-than-expected performance in its fourth fiscal quarter, despite falling slightly short on revenue projections for fiscal year 2025 due to anticipated lower hardware sales. Analyst firms Baird and TD Cowen have raised their price targets, while BMO Capital Markets and Citi maintained their Market Perform and neutral ratings on Peloton, respectively.
Analysts from JMP Securities project that the incoming CEO may implement a subscription price increase, additional cost reductions, and debt repayment initiatives. These are all recent developments in Peloton's ongoing efforts to enhance profitability and financial health.
InvestingPro Insights
Peloton's recent financial performance and strategic moves align with several key insights from InvestingPro. The company's focus on enhancing unit economics and profitability is reflected in InvestingPro data, which shows a gross profit margin of 44.67% for the last twelve months as of Q4 2024. This robust margin suggests that Peloton's efforts to optimize pricing and control costs are bearing fruit.
InvestingPro Tips highlight that Peloton has seen a "significant return over the last week" and a "strong return over the last month," which corroborates the article's mention of the stock rally following positive margin progress and the new CEO appointment. The tip noting that the stock is "trading near 52-week high" further underscores this recent momentum, with the price currently at 95.72% of its 52-week high.
However, investors should note that despite these positive signals, InvestingPro Tips also indicate that analysts "anticipate sales decline in the current year" and do not expect the company to be profitable this year. This aligns with the cautious Hold rating maintained by Canaccord Genuity.
For a more comprehensive analysis, InvestingPro offers 12 additional tips for Peloton, providing investors with a deeper understanding of the company's financial health and market position.
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