The Recent Developments Surrounding Peloton's Shares
Picture this: It's tough to imagine three years back, yet today, shares of Peloton Interactive (PTON dropping 1.62%) are plummeting an astonishing 98% from the peak set in 2021. The home fitness juggernaut has seen a decline, with the share price barely hovering around $3 as we speak. It's grappling with stagnant subscriber growth, racking up losses, and boasts a precarious balance sheet that was recently refinanced.
What happened to Peloton's stocks? Let's delve deeper to uncover the details.
Back to mediocre results, more losses loom
Recent financials reflected a similar pattern to the past, which isn't promising. Subscriber numbers remain stagnant, hovering slightly above 3 million, seeing no growth year over year and a marginal 2% increase quarter over quarter. With equipment sales dropping, Peloton's overall sales dropped again in the quarter, down 4% year over year to $717 million.
The gloom intensifies when we look at the profit and loss statement. With over $450 million in operating expenses and interest on debt, the company posted another quarter of losses. It lost $166.7 million in the quarter, a figure no investor would be pleased with. Peloton has consistently posted negative free cash flow and net income for the past twelve months since 2021, indicating its business is struggling.
The fitness equipment market is notoriously known for its booms and busts, affecting brand after brand. The love for exercise and the urge to try new trends often see consumers switching to fresh trends. Peloton gained popularity for a few years but seems to have lost its appeal among users, evident in its financial reports.
Balance sheet woes
Perhaps, even more troubling than the income statement is Peloton's balance sheet. It carries a negative stockholder's equity, indicating liabilities surpass assets. This isn't surprising given the substantial losses suffered over the past few years.
At the end of the last quarter, Peloton boasted around $800 million in cash. But it also held $1 billion in convertible bonds and $692 million in term loans. Following the quarter, the company refinanced its debt by issuing a 5.5% interest rate convertible bond worth $300 million. This, along with cash on hand, was used to pay back the previous convertible bond.
The old convertible bond carried a 0% interest rate. Now, it will pay 5.5% annual interest on this new debt, adding to its total annual-interest expense. This will further hinder Peloton in generating any profits in the near future, a necessity to settle these loans or risk exhausting its cash reserves.
It's no surprise that CEO Barry McCarthy announced his departure from the company. Peloton faces liquidity challenges that may be insurmountable.
PTON Free Cash Flow data by YCharts.
Should you dive back in onto Peloton's stocks?
In plain English: Steer clear of Peloton stocks and the “dip.” Its balance sheet is weak, there's no evidence of a comeback, and generating profits appears distant. Peloton has no appealing qualities at present, and the risk of bankruptcy is not far-fetched.
What lessons can investors draw from the Peloton stock saga? Avoid putting blind faith in new, rapidly growing brands in the fitness sector. Investors were estimating Peloton to hit 30 million subscribers by 2024, yet it only holds around 10% of that figure today. It also serves as a reminder to shun stocks with poor balance sheets, especially those burning through cash.
Instead of investing in Peloton stock, consider established blue chips for your portfolio. There's no need to dive into Peloton's uncertain future.
Despite the declining subscriber growth and persistent losses, Peloton continues to struggle with its financing, as evidenced by the refinancing of its debt with a higher interest rate. This financial turmoil may further hinder the company's ability to generate profits and could potentially impact its cash reserves.
Investors might want to consider diversifying their portfolios by looking into more financially stable, established blue-chip companies, instead of investing in Peloton's uncertain future.
