Welcome back to cheddar news everyone.
Peloton, certainly one of the stocks we've been following closely,
not just this week, but certainly the past several weeks as well.
The exercise equipment maker attempting to run
away from a recent bout of controversy.
The company's Ceo john foley publishing an
open letter to employees on thursday after reports
said Peloton was pausing production of its bike and tread products,
delaying the opening of a new U.
S. Factory and
considering job cuts.
Well in the letter,
fully writing that the information in the reports were incomplete
out of context and not reflective of the company's strategy.
Peloton stock responding
today did tank yesterday down 15% over the past two days, but it is higher. Today
did fall at nearly 24% just in yesterday's session alone alone.
Excuse me touching a new 52 week low
of about $23 a share.
So here now to discuss what it means for the company is ken,
leon, director of research at CFR, a research ken,
thank you so much for coming on the show.
So in fully center here,
he did say that the media painted in an accurate picture and then went
on to say that the companies to evaluate the size of its team,
which does seem to imply that layoffs are still possible.
What do you make of this letter and do you
think that peloton shares are reacting in the appropriate way?
We'll set
the stage for investors. This is a broken growth stock.
It was trading just below where it went public, which means for employees,
they might be having holdings that are underwater.
So that's a meaningful cultural risk on job retention no less.
If there's any headcount reductions.
Um, I think investors and even analysts are trying to figure out
really, what does peloton wannabe?
Uh,
it was unusual to see any sense that they weren't going to manufacture equipment.
This is a software and streaming media company. It happens to be fitness.
So the margins are really in the subscription yet they still sell equipment.
Um, so you know,
a lot depends on whether the fitness market is one where we still
see healthy secular growth or perhaps once we're fortunately done with omicron,
people go back to the gym.
So there's a lot of questions,
let me just jump in for a second ken, because I think people might be wondering
what happened. Um, is it supply chain issues
with these bikes?
I mean even the machines, I know the margins were in the software,
but even the machines were so expensive that they assumed
they had to be making money on the machines.
Um,
I know simultaneously though that they were paying top dollar to
expand with a huge real estate property in Hudson yards.
Some of the most expensive real estate
in Manhattan before this pandemic hit. So explain what really went wrong here
There.
I think it was self inflicted on management decisions in terms
of how price sensitive it is for selling the bikes,
they had bike plus and then with bike they lowered,
lowered the price down to 1495 now we're hearing
that they're charging for repairs or for deliveries.
So, you know, I think with demand,
they're just not sure what is the velocity
of the business they do have on subscriptions.
2.7, 8 million subscriptions. That's a meaningful business.
The churn rate is very low.
But ultimately, you know,
when you look at the print of what analysts
estimated over the next few years for revenues,
those forecasts are down meaningfully and and that compression impacted the stock
because peloton perhaps might question is this a large addressable market,
perhaps there's more competition as you see commercials
of others with screen monitors and fitness,
but peloton is best in class and programming for fitness.
So, we're kind of in this yin yang scenario of where is peloton going?
And quite honestly,
no one knows this full story until management speaks
february 8th because they're in the quiet period.
Okay, so february 8th, of course, when this company will report earnings,
The stock price hitting a 52 week low this week, $23.25 apiece.
I know we still do need information,
but this stock had risen as high as $166 a share just in the past 12 months.
So can based on what we do know,
do you think this is an attractive entry point to buy shares.
So we have a hold on the stock that right right now,
I think 15 of the 29 analysts on the street have buys, we don't,
this fits into the technology narrative theme
Companies where they're not making any earnings revenues are growing
to the sky and we're just seeing more realistic expectations.
We need to see an assessment on February eight from this management
because there's too many moving parts to really make an intelligent decision,
at least in terms of fundamental research and that's what we do at CFR a
can just very quickly for people watching the show who might work at Peloton.
Do we have any indication as to where these layoffs might be if they do come,
we actually have no information to layoffs or whether they're true or not true,
whether they're in production or in sales and marketing.
We, we just don't know.
We do know that they offer just great programming and
the instructors are best in class in the world,
so
they've been expanding into europe also Australia.
Um, we just don't know at this point,
ken, leon, Research director at CFR Research ken,
thank you so much for joining the show and hopefully we do get some answers soon