Good news for Peloton Interactive (NASDAQ:PTON) fans. The struggling and unprofitable exercise bike and fitness class company, beloved by suburbanites looking to shed some pounds while overly excited trainers scream at them to pedal faster, appears to have gotten a lifeline from TikTok, the social media app favored by the teen children of all those Peloton-using moms and dads.
Shares of Peloton soared nearly 15% Thursday and were up another 12% Friday morning on the news of the TikTok partnership. Peloton and TikTok said that they are creating #TikTokFitness, which they described as “a dedicated, co-branded hub that houses custom Peloton content.” What’s particularly notable about this is the fact that it’s the first time Peloton is producing original content outside of its own channels.
Peloton Wants Partnerships to Work Out
It makes sense for Peloton to do this. The company has fallen on extremely hard times after getting a huge boost during the peak of the Covid-19 pandemic. Shares soared in 2020 as people stopped going out as much to gyms and exercised more at home. Peloton shares hit an all-time high of about $171 in January 2021. It’s all been a painful downhill ride since then.
Even after the stock’s surge this week, shares still trade for a little less than $7 apiece. Can TikTok save Peloton?
Peloton has inked other strategic deals in the past two years, including a partnership with athletic apparel leader Lululemon (NASDAQ:LULU) as well as deals to sell equipment and accessories on Amazon (NASDAQ:AMZN) and at Dick’s Sporting Goods. (NYSE:DKS).
But despite these and other deals (Peloton also has partnerships with the NBA and WNBA, the University of Michigan and the Liverpool soccer team) the company continues to bleed red ink. Peloton posted a net loss of $159 million in its most recent quarter. That follows a nearly $1.3 billion loss in its last fiscal year. Most alarmingly, Peloton is also losing customers. The company ended its latest quarter with 6.4 million members, down from 6.7 million a year earlier. Revenue generated from selling equipment tumbled 12% too.
To be sure, CEO Barry McCarthy, who joined Peloton in 2022 after previously serving as CFO of subscription-based streaming media giants Spotify (NYSE:SPOT) and Netflix (NASDAQ:NFLX), has taken steps to try and boost Peloton’s subscriber base. But growth in both the number of people subscribing for its training services as well as overall subscription revenue has been sluggish. What’s more, Peloton posted a year-over-year 13% drop for subscribers to its paid app in its latest quarter. McCarthy conceded in Peloton’s most recent shareholder letter following earnings that the company has been “less successful at engaging and retaining free users and converting them to paying memberships than we expected.”
2024 Resolution: Avoid PTON Stock
It’s no wonder then that many on Wall Street are still skeptical that the turnaround strategy will succeed. Of the 17 analysts who cover the stock, a dozen have a “hold” rating on it, with just four “buys” as well as one “sell” recommendation. Analysts are predicting more losses for this fiscal year as well as through fiscal 2025. Revenue is expected to tumble 2% this year and only rebound 5% next year to about $2.9 billion. To put that in perspective, Peloton’s sales hit a peak of $4 billion in fiscal 2021. The company boldly predicted after reporting those results that revenue would hit $5.4 billion in fiscal 2022. It wound up coming in at just $3.6 billion.
So even though many people may be looking to get in shape as one of their New Year’s resolutions, investors should still resolve to avoid Peloton stock. Despite the TikTok deal, the company faces an arduous uphill climb to get back to its glory days of 2020.
As of this writing, Paul R. La Monica did not hold (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.
