Hail-Mary Changes Offer Subdued Hope for Peloton Interactive Shareholders

Based in New York, fitness equipment maker Peloton Interactive (NASDAQ:PTON) was a darling of the financial markets at one time. It’s a distant memory now, but PTON stock was red-hot and headed for the heavens in 2020.

Peloton (PTON stock) sign on city storefront

Source: JHVEPhoto / Shutterstock.com

That sense of euphoria was short-lived, however. The Covid-19 crisis has largely subsided and the home-workout renaissance is, it seems, past its expiration date now.

I’ve already covered the tragic incidents associated with Peloton’s home-gym products, so there’s no need to rehash that topic. Suffice it to say that Peloton’s reputational damage has been substantial.

The damage to PTON has also been considerable, and we’ll address that in a moment. Perhaps, though, we’ll also provide a hint of hope as Peloton implements much-needed changes to its business model.

A Closer Look at PTON Stock

Sorry to say it, but the glory days for Peloton’s shareholders are in the rearview mirror. The share-price rally from $20 to $170 was, in all likelihood, a one-time fluke.

Checking in recently, it appears PTON stock might complete a round trip back to $20. With that, opportunistic traders could conceivably purchase the shares at pre-Covid-19 prices.

Caution should be exercised, however, as a cheap stock can always get much cheaper. Thus, it may be wise to wait until there are signs of buying activity before stating a position in Peloton.

In other words, it’s probably a good idea to stay on the sidelines until PTON stock shows some signs of life. Or, at the very least, keep your position size small and possibly add to it later.

The Hail-Mary Pass

“Peloton is at an important juncture, and we are taking decisive steps,” declared John Foley, a co-founder of the company.

Important juncture, indeed. In 2020’s fourth quarter, Peloton reported net income totaling $63.6 million; in the fourth quarter of 2021, the company incurred a net loss of $439.4 million.

That’s an alarming swing to unprofitability, and if there were ever a time for Peloton to make a Hail-Mary pass, this would be it. With the company still reeling from its reputational problems and inflation making pricey home-exercise equipment less appealing, it needs to make big changes sooner rather than later.

Apparently, the company is ready to step up to the plate and face its do-or-die moment. It appears Peloton is not only rolling out a product re-pricing strategy, but is implementing a whole new business model.

Shrinking to Grow Bigger

So, here are the quick-and-dirty details. First, Peloton plans to wind down the development of its Peloton Output Park manufacturing plan, thereby saving $60 million in restructuring capital expenditures.

Second, the company will slash its head count by around 2,800 positions. This will include a reduction in corporate positions by roughly 20%. Those cost-cutting measures might be necessary, but Peloton’s viability depends on its ability to sell products, plain and simple.

And so, he company is testing out a new pricing strategy. According to The Wall Street Journal, Peloton is allowing its customers to “pay a single monthly fee that covers both the namesake stationary bike and a monthly subscription to workout courses.”

Not only that, but Peloton is allowing its customers to cancel the program and return their bikes to Peloton with no charge. Plus, for a limited time in select stores in Florida, Texas, Denver and Minnesota, Peloton is offering a bike and subscription for $60 to $100 per month.

So, the billion-dollar question is: will a leaner Peloton with a stronger focus on affordability succeed in the long term?

Cost-cutting is painful, but it could help Peloton veer back toward profitability. Furthermore, rolling out low-priced plans isn’t a bad idea during a time of rising inflation.

The Bottom Line on PTON Stock

Just maybe, Peloton’s Hail-Mary pass will hit the mark. At least, we can say the company isn’t just letting itself circle the drain without taking action.

If PTON stock is trading at pre-pandemic prices, there may be a terrific buying opportunity here. After all, we’re supposed to buy stocks when the prevailing sentiment is negative, right?

There’s truth to that in principle, but Peloton’s future remains uncertain. A small position in the company’s stock isn’t the worst gamble an investor can make. Just be prepared for the possibility that its big changes could turn out to be equally big failures.

On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

David Moadel has provided compelling content – and crossed the occasional line – on behalf of Motley Fool, Crush the Street, Market Realist, TalkMarkets, TipRanks, Benzinga, and (of course) InvestorPlace.com. He also serves as the chief analyst and market researcher for Portfolio Wealth Global and hosts the popular financial YouTube channel Looking at the Markets.


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