The bull case for Peloton right now isn’t crazy

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Shares of Peloton (PTON) have been in free fall in recent months, but some bulls still believe the connected fitness company can make a comeback.

That may be counterintuitive, since Peloton’s stock has fallen about 85% in the last year, and this month, the stock hit an all-time low. Peloton’s stock took another hit this week when UBS downgraded it, citing concerns about falling demand and the high cost of acquiring customers. A year ago, Peloton shares were trading above $100 and closed Wednesday at $14.42 a share.

That may seem crude, but there’s evidence that Peloton’s stock has fallen too far.

“When I saw $100 last year, I was very bearish, but you have to really dislike the fundamentals to dislike $15,” said Bernstein analyst Aneesha Sherman.

So, what is the bull case for Peloton? It all depends on the strength of the product and the brand. Peloton started out as a company seeking to provide the elegance, community and fun of a boutique fitness studio in the home. It’s known for its stylish stationary bikes, where you can take virtual classes with instructors who have gained a following across the country.

such as now, Citizens-owned JMP Securities analyst Andrew Boone believes Peloton’s brand awareness is at an all-time high. This brand awareness is important, especially as the company tests new pricing models and hopes to lower barriers to entry for customers who have traditionally found Peloton products out of reach. Previously, a Peloton bike could cost as much as $2,035, but now the top bike is $1,735 and there are payment plans.

Sherman, who believes in the strength of Peloton’s products, told Yahoo Finance that there are “a lot of benefits” to these pricing efforts.

Furthermore, despite Peloton’s competitors, none of the market leaders is ready to immediately replace Peloton in the public imagination. Sherman believes that while the instinct is to compare Peloton to other fitness hardware makers, those companies aren’t its biggest competitors.

“Experience and connectivity are key for Peloton, so their real competitors are other health and wellness ecosystems that are the focal point of the consumer fitness journey,” she said.

Competitors could include Nike (NKE), Apple (AAPL) and Lululemon (LULU), all of which have invested in building their own fitness-focused apps and ecosystems.

“They are clearly over-invested in their business”

To be sure, Peloton’s operational missteps during COVID have been severe, as supply chain issues have intensified and security incidents have sparked a storm. In 2021, a 6-year-old died in an accident related to a Peloton treadmill, leading to a recall. There’s also a bizarre cultural moment where Mr. Big’s death is tied to Peloton in the Sex and the City reboot, who responded by shooting an ad with longtime Mr. Big actor Chris Noth to bring him back to life. Noth After being accused of sexual assault, Peloton pulled the ad, an unwanted PR disaster for the company.

Still, some of Peloton’s mistakes are similar to those made by other e-commerce companies that have seen a surge in the pandemic, Boone said.

“They’ve clearly overinvested in their business throughout COVID,” he told Yahoo Finance. “They’ve invested in their supply chain and their business. Overall, everyone in e-commerce has overinvested in their business over the last two quarters, which is a surprising trend because we all think that This will go on forever.”

For Sherman, Peloton is in the midst of a tentative correction, and she thinks there’s still a lot we don’t know — including what the company’s true growth rate might even be. Time will begin to remove those edges and uncertainties, she said.

“They’re undoing the mistakes of the past in the way the company operates,” Sherman said. “At the same time, they’re trying to figure out what their steady year-over-year growth rate is because it’s been such a noisy couple of years.”

cards on the table

Disclosure time. I’ve used my parents’ Peloton gear and I love it. When I visit my family, I’m excited to play ’90s grunge and pop-punk on their bikes. I’m not the only one either. My editor is also a big fan of Peloton; we often talk about how much time it saves busy parents. Boone also loves bicycles. Boone told Yahoo Finance that as things unfolded, Peloton’s story was ultimately underpinned by the company’s exceptional, leading-edge core product.

“At the end of the day, our whole thesis is about the product being incredible,” he said. “I don’t know how this is fixed yet, but I’m pretty sure they’ll be able to fix it because the product is so good.”

From Boone’s perspective, the key challenge for Peloton going forward is getting the butt in the seat, as consumers are less likely to leave once they’re on a Peloton bike in particular. In its most recent earnings, Peloton’s subscriber churn rate, or percentage of customers who stopped subscribing, was below 1%

“Peloton has historically been very, very good at retaining customers, so it’s just getting people over the hurdles of buying a product,” he said.

The company is also in the process of releasing the rower, further adding to the group of consumers who may be interested in and eventually hooked on the Peloton ecosystem. Despite the company’s many challenges, and its lack of unbelievers, there’s something about the case Boone and Sherman makes that resonates: The strength of Peloton’s product is important enough to get the company through it.

Maybe it’s because, when I visit my parents soon enough, I know I’ll end up on their porch, sitting upright on their Peloton, rocking on Green Day.

Allie Garfinkle is a senior technology reporter at Yahoo Finance.find her on twitter @agarfinks.

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