interactive platoon (pton 0.00%) was a pandemic favorite. he home exercise equipment is equipped with digital tablets packed with virtual classes and the ability to stream content, making it the perfect companion for a confined workforce and work-from-home arrangements.
After hitting the pandemic low of $19.72 per share in March 2020, Peloton shares soared 725% in December of that year. But as the company progressively reopened and the bunch hit some trouble, the stock fell sharply, losing 83% of its value.
Reading: Should i sell my peloton stock
Here are two key reasons the company might struggle to return to its former glory and one reason it might make a comeback.
reason to sell: user engagement has plummeted
Declining user engagement has hit platoon stock a lot. The company continues to grow its subscriber base, albeit at a slower pace compared to fiscal 2020 and 2021, but the time subscribers spend on the app and squad team has plummeted.
The average number of workouts each subscriber does each month is tracked by platoon, and since peaking in Q3 FY2021 at 26, has dropped by 40% to 15.5 more recently. this is represented by the orange line below.
As people now spend less time at home and with gyms reopening around the world, it seems that home workouts are losing popularity.
If monthly workouts continue to decline, there could be a diminishing benefit to users of paying for a platoon subscription, or even owning platoon equipment, compared to having a gym membership. Additionally, it makes it less likely that users will move from a basic-level subscription to the Peloton app to an all-access subscription plus ownership of a Peloton hardware product.
reason to sell: revenue growth has stalled and losses are mounting
Decreased engagement has ongoing effects that can include decreased sales. As a result, Platoon is experiencing stagnant revenue growth, which is causing the company’s net loss to grow significantly.
In the first six months of fiscal 2022, platoon spent $633 million on marketing, which was an increase of 117% compared to the same period in fiscal 2021, but revenue was only up 6% over the same period period. Simply put, the company is seeing diminishing returns on its marketing efforts and is struggling to generate more sales despite dizzying investment to capture consumers’ attention.
When a company spends an increasing amount of money but fails to generate an equivalent increase in revenue, the losses tend to expand as shown in the graph above.
Looking at the big picture, analysts expect the platoon to generate $3.7 billion in revenue for the full 2022 fiscal year. If they’re correct, that would translate to a 7% contraction compared to fiscal 2021. This is a key reason why the peloton’s stock has plunged 83%: Few investors want to put money into a business that doesn’t is growing.
reason for purchase: under new management
One reason to pin your hopes on platoon could be its new CEO, Barry McCarthy, who brings a wealth of experience as a former CFO of both spotify and Netflix. . One person is usually not enough to turn around a company of this size, but in this case, some radical changes are in the works.
peloton could lean further into the fitness-as-a-service business model, lowering its equipment upfront costs in exchange for a higher recurring subscription price. that would allow more users of different income levels to access their products, and the tests have already begun. At the same time, the company is cutting costs dramatically by reducing its corporate workforce by up to 20%.
Finally, there could be a greater focus on the digital attributes of the platoon. it’s possible that the ecosystem could host its own app store, with developers (and other fitness providers) tapping into the peloton’s user base to grow their own businesses for a fee. this would unlock new revenue streams for the company.
but these changes could take years to materialize. investors are better off waiting on the sidelines until the financial picture begins to change and uncertainty begins to fade.