Investors aren’t too happy Peloton (PTON) is slashing the price of its entry-level connected bike for the second time in under a year, which will weigh harshly on the bottom line over the next 12 months.
But from Peloton’s perspective, it was all part of the plan even if investors didn’t realize it.
“If you look back over the last several years, we have always had the aim of making our products more accessible. We introduced 0% APR financing four years ago. We introduced a 30-day free home trial a couple years back. We have also cut the price of our digital app as well,” explained Peloton CFO Jill Woodworth on Yahoo Finance Live.
Continued Woodworth, “As you can imagine over the last several years, we have essentially sold every bike that we could make. And over the last couple months, of course, the pandemic forced us to really grow our manufacturing base eight or nine times during the pandemic. And so we are finally in a place from an inventory perspective where we can actually enact a dramatic price change to really open up the accessibility of our products. So we are really excited about it.”
Peloton said it would cut the price of its bike by $400 to $1,495 as it focuses more on gaining new subscribers than driving profitability. The original price of the bike was $2,245 as of September 2020, just before it released a higher end version.
Woodworth declined to comment on whether Peloton would slash the price of its treadmill, which costs more than $4,000 for the high-end Plus version.
Suffice it to say investors see the situation otherwise, especially as the company saw a slowdown in subscriber growth in its most recent quarter that ratcheted up concerns about increased competitive pressures.
Peloton shares fell about 10% to $105 in Friday’s session on the news. The stock has shed 30% so far in 2021, underperforming the S&P 500’s 19% gain.
Here is how Peloton performed in its fiscal fourth quarter compared to Wall Street analyst estimates:
Net Sales: $936.9 million vs. $929.1 million
Adjusted Operating Profits: loss of $45.1 million vs. loss of $57 million
Diluted EPS: loss of $1.05 a share vs. loss of $0.44
Peloton also served up a cautious outlook for its new fiscal year, reflecting the price cut in its bike, manufacturing investments and costs related to its treadmill recall.
Net Sales: $5.4 billion vs. $5.2 billion estimate
Adjusted Operating Profits: loss of $325 million vs. loss of $194.8 million
Analysts generally had blunt takes on the stock following the mixed quarter and much worse than expected full-year guidance.
“When companies have little competition, they don’t need to market or promote. When competition arises, so does the need for marketing and discounts. Competition is growing and Peloton’s second price cut in a year coupled with higher marketing may speak more to materially higher inventory and competition than to its democratizing of fitness. After all, if management saw a 20 million Unit SAM [software addressable market] at prior prices, why discount now?,” said BMO Capital Markets analyst Simeon Siegel.
Siegel maintained an Underperform rating on Peloton’s stock.
“Recommend the bike, especially for $1,495, worried about the shares,” remarked Siegel.