Peloton Interactive shares moved higher on Monday, November 4, after strong first-quarter results and a new CEO prompted a double upgrade from Analyst Curtis Nagle and his team at Bank of America Securities.
Nagle said that Peloton’s Fiscal 2025 first quarter results were surprising, with much higher than expected EBITDA, and its FY 2025 guide was raised to $240 million to $290 million (vs. $232 million for the Street).
BofA sees a “large opportunity” for cost cuts under Stern’s leadership, as well as higher hardware margins and subscription price increases.
“We believe Peloton can exceed $300mn in EBITDA this year (current est is $295mn) and see $400mn+ as possible over the next few years,” the analysts team wrote. “Relative to subscription peers, OPEX is well above avg., and, under a new CEO, we see a large opportunity for more OPEX cuts, higher hardware margins and subscription price increases (none of which are included in our ests, and price increases could yield DD EBITDA growth). Risks are weakness in subscriber trends, execution risk and soft outlook for high ticket durables, but we see current EBITDA as supportive for valuation.”
According to the bank, Peloton’s operating expenses are “well above“ peer averages and could yield $100 million in savings.
“While Peloton has maintained very impressive, above peer average monthly churn (1.6 percent), new subscribers are not growing at a fast enough rate to expand the total subscriber base,“ BofA wrote in its note. “We see this as one of the bigger risks but also believe guidance for F25 could be conversative (sic) as it implies a deceleration through the year.“
Nagle’s team noted that the company’s growth initiatives to date have yet to take hold, but strategies around more personalized offers, more emphasis on the tread market (2x bike) and men (mix grew 9 percent in Q1) and retail distribution (incl. Costo for Holiday) could, at a minimum, stabilize user tends.
“We also await growth plans from new CEO Peter Stern, though not likely until early/mid-2025,“ the bank said.
BofA raised its rating to “Buy“ from “Underperform“ and boosted its price target to $9.00 from $3.75 after the fitness equipment maker and content provider topped consensus estimates and appointed former Apple and recent Ford executive Peter Stern as its new president and CEO.
As previously reported by SGB Media, Stern, who recently served as president of Ford Integrated Services and previously was an executive at Apple, will begin his new role on January 1, 2025.
Nagle wrote in a note on Monday morning, November 4, that Stern may not have public company CEO experience, but he meets all the criteria set by Peloton’s board, including:
- consumer software and hardware experience,
- subscription services,
- health & wellness tech (incl. co-founding Apple Fitness Plus), and
- is an avid Peloton user.
“We also favor the decision to shift more executive incentive comp to performance versus time-based stock options,“ the note read.
Peloton’s PTON shares rose nearly 4 percent on October 4, and shares are up ~14 percent since the company reported its results before the market opened last Thursday, October 31.
Image courtesy Peloton Interactive
***
For additional Peloton coverage from SGB Media, see below.
EXEC: Peloton Shares Spike with New CEO and Above-Plan Q1 Results
