Peloton's Profitability Potential Is Broadly Underestimated, Says This Analyst - Peloton Interactive (NASDAQ:PTON)

JMP Securities analyst Andrew Boone reiterated a Market Outperform rating on the shares of Peloton Interactive Inc PTON with a price target of $25.00.
Peloton announced its fourth round of layoffs this year as it let go of 500 employees, representing about 12% of its workforce, as it continues to right-size its cost structure.
After the recent cut, the company's workforce now stands at about 3,000 versus 1,950 at the end of FY19.
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While Boone acknowledges Peloton's larger subscription business, with limited visibility on Connected Fitness demand, and as the business is increasingly simplified with delivery, manufacturing, and parts of customer service outsourced, he expects employee headcount to trend down further, given attrition and ongoing cost discipline.
So, the analyst believes the company can continue to be diligent around costs as it adjusts to post-peak COVID demand.
While Boone acknowledges concerns around normalizing demand, especially with the overlay of macro headwinds, Peloton's actions make him increasingly confident of its growth given ongoing cost discipline.
He thinks the company can grow demand through merchandising, international expansion, and enhancing the monetization of its digital app.
While CEO McCarthy was clear the company is not looking for a buyer, nor is that process imminent, Boone believes the company does have the strategic value given its affluent customer base, strong customer loyalty, and the reach of its instructors.
Though the analyst thinks results will be volatile in FY23, with shares at 2.3x annualized subscription revenue, he believes Peloton's profitability potential is broadly underestimated today. The analyst views Peloton as a strategic asset as he continues to have a positive view on the shares.
Related: DICK'S To Sell Peloton Products - Can This Latest Effort Attract New Customers?
Price Action: PTON shares are trading higher by 1.73% at $8.84 on the last check Monday.

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