What Wall Street Expects Tuesday

A woman walks past a Peloton store in Manhattan on May 05, 2021 in New York.

John Smith | VIEW press | Corbis News | Getty Images

Analysts and investors are eager to get to know each other group CEO Barry McCarthy and let him articulate his vision for the future of the company. He will have the opportunity to show up on Wall Street on Tuesday.

The former Netflix Other Spotify executive has been the head of the connected fitness equipment manufacturer for about three months since he took over the role from the company’s co-founder, John Foley. It took over as a slowdown in equipment sales and rampant spending weighed on Peloton’s profits.

Some of McCarthy’s efforts to strengthen the company’s financials and regain investor confidence are already underway, as Peloton looks for new clients but also ways to earn more from its current user base. The company recently has cut the prices of its equipment, including Bike, Bike + and Tread, in hopes of making products more affordable for a wider audience. On June 1, he plans to increase the rate for a monthly subscription plan with unlimited access, to $ 44 from $ 39.

Under McCarthy, so was Peloton test a rental option in selected US markets, where users can pay a monthly fee of between $ 60 and $ 100 for a rental bike or bike, along with access to its training content library. It is not yet clear whether this option can be implemented nationally.

“With a new CEO, no clear strategy yet, and the core value proposition questioned, there is a lot of uncertainty about what will happen next with Peloton,” Bernstein analyst Aneesha Sherman wrote in a note to clients.

Peloton is expected to report a third-quarter fiscal loss of 83 cents per share on revenue of $ 972.9 million on Tuesday, according to an analyst survey compiled by Refinitiv. This is compared with a loss of 3 cents per share on revenue of $ 1.26 billion a year ago.

Here’s what Wall Street will be watching as Peloton reports it results.

Cost cutting updates

McCarthy knows he has to cut costs to keep the business afloat. The jury has not yet decided whether Peloton’s plans will go far enough.

About three months ago, the New York-based company announced a massive overhaul of its cost structure which included the elimination of approximately 2,800 jobs. Peloton also said it would stop development of Peloton Output Park, the $ 400 million factory it owns. it was construction in Ohio.

All in all, Peloton’s plans would cut about $ 800 million in annual costs and cut capital expenditures by about $ 150 million this year.

Activist Blackwells Capital has argued that those cuts will not be enough. the company who in late January invited Peloton to fire Foleycontinue to push the connected fitness equipment manufacturer to sell itself to a business like Amazon, Google or Netflix.

MKM Partners CEO Rohit Kulkarni said he expected Peloton to review its cost structure this week. The company will likely have to take additional cost-saving measures that are “quite painful but fiscally prudent,” he said.

“How much can variable marketing spend go down, but not have a material impact on the brand in the long term?” Kulkarni wrote in a note to customers. “Is Peloton planning to close stores or delay capital investments like manufacturing studios and factories?”

Kulkarni also said he will be looking for Peloton to detail any initial consumer reactions to recent price drops and the looming increase in subscription fee.

Peloton previously said it does not expect to be profitable, based on adjusted core earnings, until fiscal year 2023.

Growth of subscribers

Peloton’s predictions for subscriber growth will be in the spotlight on Tuesday, analysts say. This will allow Wall Street to assess how much post-Covid pandemic the demand remains for Peloton’s equipment and fitness content.

As of December 31, Peloton reported 2.77 million connected fitness subscribers, who are people who both own a piece of the company’s hardware and pay a monthly fee to access its workout classes. It has more than 6.6 members in total, including those people who pay for a cheaper, digital-only subscription.

Peloton previously said it expected to finish its fiscal third quarter with 2.93 million connected fitness subscribers.

UBS analyst Arpine Kocharyan said in a client note that he will be looking for Peloton’s subscriber growth targets but also, equally importantly, any signs that current users may be abandoning their subscriptions.

Peloton’s average monthly dropout rate from connected fitness, which stood at 0.79% in December. 31, is a metric that allows analysts and investors to track just that. The lower the churn rate, the better the news for Peloton, because it means people stick around and keep paying for the content.

“What matters most is management’s comment on the new pricing strategy, customer acquisition costs and the impact on churn rates,” said Kocharyan.

The strategic logic of a potential deal involving Peloton and a suitor also remains a key debate among investors, he added.

Peloton could become a more attractive acquisition target if its shares continue to decline. The stock hit an all-time low of $ 14.14 on Monday.

The sell-off came after the Wall Street Journal on Thursday reported that Peloton is addressing potential investors, including industry players and private equity firms, to acquire a stake in its business of between approximately 15% and 20%. Peloton declined to comment on the report.