If you’ve been pedaling hard all year but aren’t getting anywhere, at least two possible explanations come to mind. First, you may be riding a Peloton (NASDAQ:PTON) bike. On the other hand, you may own some PTON stock.
No doubt, owning PTON shares this year has been challenging. While the coronavirus pandemic made at-home workouts more popular than ever, a May tragedy continues to weigh on the company.
In late May, Peloton recalled its Peloton Tread+ treadmill following the death of a 6-year-old who was pulled underneath the machine. The U.S. Consumer Product Safety Commission warned customers not to use the treadmill. Customers reported 29 other injuries, and the crisis pushed the stock price below $90.
So far this year, PTON stock is down more than 26%. Even after showing signs of a rebound in the last quarter, Peloton has a long way to go.
Will the cloud of the Peloton Tread+ tragedy continue to hang over PTON stock? The company has already said it expects to lose $165 million in its fiscal fourth quarter. Earnings for the fourth quarter and the full year are expected after the closing bell on Aug. 26.
Alternatively, is this an ideal time to get back into Peloton stock? The home workout trend appears likely to continue for the foreseeable future. Let’s take a closer look.
PTON Stock at a Glance
In the third quarter, PTON stock reported a loss of 3 cents per share. That was better than the loss of 12 cents per share that analysts predicted. Revenue in Q3 was also better than expected, coming in at $1.26 billion and beating analysts’ predictions of $1.1 billion.
Peloton expects to post fourth-quarter sales of $915 million. That’s lower than analysts’ initial expectations of $1.12 billion in sales, thanks to the treadmill recall.
In addition to refunds, Peloton offered to waive membership fees for three months. Fourth-quarter adjusted EBITDA will fall about $16 million, the company said.
But on the other hand, Peloton says its cycle sales remain strong. The company said unit sales of its cycles in Q4 are expected to be three times what they were two years ago.
The message here is that fourth-quarter earnings won’t be as good as they were in the third quarter. Management should talk about the long-term impact of the treadmill recall and say whether it’s having an impact on memberships.
Peloton Is Blending Gaming and Exercising
Fortunately for investors, there are some other interesting projects that provide long-term headwinds for PTON stock.
Video games are immensely popular. And as Peloton has proven, working out at home is popular as well. Now, the company is combining those two pursuits.
Peloton recently announced a new game called Lanebreak to Peloton subscribers. Users will control a rolling wheel by pedaling their cycles down a lane. The game has been compared to Rainbow Road in Nintendo’s (OTCMKTS:NTDOY) popular Mario Kart racing game.
According to Benzinga, users will be able to choose levels, the type of music the game plays and the duration of the track. Lanebreak will only be available to Peloton subscribers and could be part of a basic subscription plan. Eventually, Peloton could offer additional games as part of premium memberships.
More people than ever are working from home these days thanks to Covid-19. As a result, some companies are looking for ways to keep their stay-at-home workforce engaged and healthy.
To that end, Peloton announced the launch of a corporate wellness program that is being offered to companies seeking mental and physical health programs.
Through the program, participating companies can give their employees access to digital and all-access Peloton memberships.
“We heard from partners that they need flexible employee wellness solutions that can meet the evolving demands of a modern workforce,” said Peloton Corporate Wellness General Manager Cassidy Rouse. “Whether you’re at home, on the road or in the office, you should be able to access the physical or mental exercise that fits your schedule – and even team up with a coworker to motivate each other.”
This is a brilliant idea that will do a couple of things. First, it gives Peloton another income stream by working directly with companies rather than individuals. With a single deal, Peloton can get its products and training in front of hundreds of people at a time. Its corporate partners will also promote such offerings endlessly. They want to see as many employees as possible engaged with company-sponsored activities.
Secondly, when employees leave their companies, they’ll be more inclined to get their own Peloton memberships if they found the classes and programs enjoyable. In fact, JMP Securities analyst Ronald Josey called the corporate wellness programs an “on-ramp to the service that can act as another catalyst to new subscriber growth.”
The opportunities don’t stop at just companies. In September, United Healthcare (NYSE:UNH) customers will have access to Peloton fitness classes. That will add millions to Peloton’s potential market pool.
The Bottom Line
While Peloton is down year-to-date, it’s also important to note that PTON stock gained about 40% since hitting a low in late May.
As the Delta variant is forcing some cities to reinstitute indoor mask mandates, it’s clear that there’s plenty of appeal to working out at home. And Peloton is making plenty of inroads – through entertaining games and corporate partners – to seize an outsized portion of the market for the foreseeable future.
On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.
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