Peloton stock has gained nearly 50% since mid-July to around $12.50, after testing all-time lows of just over $8 per share. While Peloton has been weighed down by a host of issues including declining sales and poor inventory planning, the company has planned a major overhaul of its operations, with plans to cut costs and become profitable through a host of new features. initiatives. Last week, Peloton announced plans to cut staff as it closes some warehouses and scales distribution and customer service operations, switching to third-party deliveries. Peloton also intends to close a significant number of retail stores while raising prices for some of its gear. For perspective, prices for the flagship Bike+ will be increased by $500 to $2,495, with the Tread treadmill becoming $800 more expensive, to $3,495. Additionally, in early July, the company announced that it would move away from in-house manufacturing of its fitness equipment, focusing on working with third-party manufacturers in Asia, which could help simplify its supply chain and to reduce costs.
So is Peloton stock about to rally further from current levels? While Peloton and its management have their work cut out for them in terms of a turnaround, we see some notable positives for the title, the first being Peloton’s lucrative subscription business. The business has continued to grow, despite recent hardware headwinds, which may provide a floor for the stock. In the third quarter of FY22, subscription revenue increased 54% year-over-year to $370 million, with subscription gross margins increasing 350 basis points to 68.1%. Peloton’s core customer base also appears to be very loyal, with churn rates of just 0.75%, roughly matching the churn rate of Verizon’s postpaid cordless phones, one of the most popular consumer subscriptions. tights. Peloton also believes it has some pricing power in this sector, as the company increased its connected fitness fees from $39 per month to $44 in July. Investors will be watching closely for underwriting momentum as the company releases its FY22 fourth quarter results on August 25.
Peloton’s valuation is also quite attractive. The stock now trades at just 1x consensus earnings for FY23, compared to more than 6x before the pandemic. In fact, even if we exclude Peloton’s hardware business, Peloton is valued at less than 4x estimated subscription revenue for 2022. There remains a real possibility that it could eventually be repriced upwards, as revenue from ‘subscription continue to represent a greater combination of sales. For example, during the third quarter, subscription revenue represented nearly 39% of total sales, compared to just 19% a year ago. We estimate Platoon evaluation at around $20 per share, which is well above the current market price. Discover our analysis on Platoon income: How does Peloton make money for a more in-depth look at Peloton’s business model, key revenue streams and how they’ve evolved.
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