Discusses the deal reached with Amazon, analyst thoughts and what financials the market is looking for at the Q4 print
Peloton Rallies
Shares of interactive exercise equipment company Peloton Interactive Inc (NASDAQ:PTON) rallied 20.4% on Thursday after the firm’s executives released news about a successful deal brokered with e-commerce giant Amazon.com, Inc. (NASDAQ:AMZN).
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Under the agreement, Peloton will expand its distribution footprint with a suite of products that will be available to millions of Peloton Members and potential customers. The push aims to make products more readily available to consumers in various locations across the United States.
Prior to this historic transaction, Peloton’s equipment and fitness apparel had only been sold exclusively through the brands own website, inside sales channels and showrooms.
The initiative has been deemed as Peloton’s latest innovation to drive growth by collaborating with the world's best-in-class e-commerce retailer to expand access to its highly sought-after products.
Expansion Of Distribution Channels
Cornils provided a statement with the official release that said, “Expanding our distribution channels through Amazon is a natural extension of our business and an organic way to increase access to our brand”
Analyst Justin Post from Bank of America suspects the deal is a first-party arrangement with a forecast 15-25% wholesale discount could potentially impact PTON’s gross margins. On the flip-side, Post expects the deal to help aid brand awareness that could drive additional subscriber growth in FY23. The firm remains ‘buy’ rated with a $23 target following the news.
Youssef Squali from Truist Securities notes the deal could lower advertising spend and boost profitability in the near-term. Squali also highlights that if the deal proves to be successful, there could be scope for an expansion of the partnership across other countries and potentially even a closer partnership that could see PTON content being made available to as part of the Prime offering (as seen with other subscription services). Despite the news of the transaction, Truist remains ‘hold’ rated on the stock with a $13 price target.
Fourth Quarter Earnings Preview
Peloton is scheduled to report fourth quarter earnings on Friday morning pre-market.
Consensus analyst forecasts are pointing to revenue of around $682 million which is towards the bottom end of the $675-700 million guidance provided by management. Consensus forecasts for segment revenues can be found below:
- Connected Fitness Product Revenue ~$289 million
- Subscriptions Revenue ~$396 million
Gross margins for the group are expected to be marginally ahead of the ~31% management guided. Subscription margins are expected to fall from 71.7% in Q3 to around ~69% in Q4 and the negative Fitness product margin is expected to widen from -11.4% in Q3 to around -20% in Q4 before staging an expected recovery to around -3% in the Q1 of FY23.
For EBITDA, analysts expect the company to come in at around negative -$123 million which is slightly worse than the guidance range of -$115-120 million.
These estimates are based on forecasts by analysts that Peloton will end the financial year with a Digital Subscriber base of about ~1 million and a Connected Fitness Subscriber base just shy of ~3 million.
Fintel research suggests that options market sentiment remains bullish leading into Q4 results with a put/call ratio of 0.56.
This ratio illustrates the level of open put and call interest in the market over the medium-term and helps indicate bullish and bearish investor sentiment in the market.
The chart to the right shows this ratio and how it has behaved over the previous few months. The chart shows that as the share price has declined over time, the market has continued to become more bullish on the future trading prospects, despite a slight reversal over August.
PTON is currently the 211th most popular investment choice by retail investors who have linked their portfolio for free with the Fintel platform.
Article by Ben Ward, Fintel
