Peloton In For A Rough Ride With Increased Churn and Revenue Risks, Analyst Forecasts

B of A Securities analyst Curtis Nagle downgraded Peloton Interactive Inc PTON from Neutral to Underperform and cut the price target to $4.15 from $6.50.

The shares do not reflect the risk to revenue from increased churn due to declining platform engagement and a subscriber base that is increasingly at risk as COVID cohorts reach the average subscriber lifetime, Nagle noted. The analyst lowered his estimates, and relative to the Street, his FY24 and FY25 revenue is 6% and 14% below. 

While his 1Q24 revenue estimate aligns with consensus, Bloomberg Second Measure credit and debit card observed sales and transactions imply a 3.6ppt sequential deceleration in YoY trends vs. a 1ppt acceleration expected by the Street. 

Churn risk increasing & initiatives not moving the needle Peloton is the leading global digital fitness platform with 3 million members and annual retention rates on par with top-tier subscription companies. 

However, Nagle said cracks are forming in Peloton’s ability to grow subscribers. 

His analysis of three years of class data for top Peloton cycling instructors shows a sharp drop in the number of classes taken per subscriber, a contributor to higher churn in 2023, and noted a -90% correlation between the two metrics since 3Q21. 

Nagle sees increased churn risk in 2024 from this dynamic as the number of members reaching the average subscriber lifetime increases 2.6x from 2023 using a 60-month average lifetime, putting more onus on growth initiatives that have yet to impact results materially. 

The analyst estimates net subscribers of -63 and -119k in FY24 and FY25 vs. +6 and +88k for the Street. 

Nagle projected FY24 revenue and EPS loss of $2.62 billion (prior $2.81 billion) and $(0.39) (prior $(0.26)).

He estimated FY25 revenue and EPS loss of $2.55 billion (prior $2.92 billion) and $(0.22) (prior $0.02).

Price Action: PTON shares traded higher by 3.13% at $4.95 on the last check Thursday.