Investors aren’t too happy that Peloton (PTON) is slashing the price of its entry-level connected bike for the second time in less than a year, which will weigh heavily on earnings over the next 12 months.
But from Peloton’s perspective, it was all part of the plan, even if investors didn’t realize it.
“Looking back over the years, we’ve always had the goal of making our products more accessible. Four years ago, we introduced 0% APR financing. A few years ago, we introduced a 30-day free trial. We’ve also lowered the price of our digital app,” Peloton CFO Jill Woodworth explained on Yahoo Finance Live.
Woodworth continues: “As you can imagine over the past few years, we’ve sold essentially every bike we could make. And over the past few months, of course, the pandemic forced us to really grow our production base eight or nine times during the pandemic. And so we’re finally in a place from an inventory perspective where we can actually make a dramatic price change to really increase the accessibility of our products, so we’re really excited about it.”
Peloton said it would lower the price of its bike by $400 to $1,495 as it focuses more on gaining new subscribers than increasing profitability. The bike’s original price was $2,245 as of September 2020, just before it released a more expensive version.
Woodworth declined to comment on whether Peloton would lower the price of its treadmill, which costs more than $4,000 for the high-end Plus version.
Suffice it to say, investors view the situation differently, especially as the company saw a slowdown in subscriber growth in its most recent quarter, raising concerns about increased competitive pressure.
Peloton shares fell about 10% to $105 during Friday’s session on the news. The stock is down 30% so far in 2021, which underperformed the S&P 500’s 19% gain.
Here’s how Peloton performed in the fiscal fourth quarter compared to Wall Street analyst estimates:
Net sales: $936.9 million vs. $929.1 million
Adjusted Operating Profit: $45.1 million loss vs. $57 million loss
Diluted EPS: loss of $1.05 per share vs loss of $0.44
Peloton also offered cautious prospects for its new fiscal year, reflecting its bicycle price cut, manufacturing investments and costs associated with the treadmill recall.
Analysts generally took a blunt view of the stock after the mixed quarter and a much worse-than-expected outlook for the full year.
“When companies have little competition, they don’t have to market or promote. When competition arises, so does the need for marketing and discounts. Competition increases and Peloton’s second price cut in a year combined with higher marketing can be more material higher inventory and competition than the democratization of fitness, after all, if management saw a SAM of 20 million units [software addressable market] at previous prices, why discount now?” said BMO Capital Markets analyst Simeon Siegel.
Siegel maintained an Underperform rating on Peloton’s stock.
“Recommend the bike, especially at $1,495, concerned about the stock,” Siegel noted.