Peloton Interactive Inc (NASDAQ:PTON) could see a $15 million headwind to its gross profit for the fourth quarter due to the recall of defective bike seats during the period, analysts at the Bank of America Corp (NYSE:BAC) (BoA) believe.
The fitness equipment company will report its fiscal fourth quarter and full year 2023 earnings before the stock market opens on Wednesday, August 23.
“Promotional activity around new app strategy and bike seat recalls are 4Q margin risks, with the seat recall cost potentially $15 million higher than Street estimates,” the analysts wrote in a note to clients.
Wall Street analysts, on average, expect the company to report a loss per share of $0.45 on revenue of $640.5 million for 4Q.
For the full year, analysts forecast a loss of $3.30 per share on revenue of $2.8 billion, according to Zacks Consensus Estimate.
Connected fitness subscription additions are pegged at 18,000, below Peloton’s guidance of 22,000.
“Based on an uptick in web traffic, daily average users and download trends from the May brand and app relaunch, we expect modest upside to connected fitness subscriptions (flattish subscriptions quarter-over-quarter) and upside to Street digital subscriptions (plus 2.3% quarter-over-quarter in 4Q),” the BoA analysts wrote.
“Despite churn being seasonally high in 4Q, Similarweb traffic data suggests stable quarter-over-quarter churn; we believe it will be below our 1.28% estimate.”
The analysts said they expect management to provide in-line first quarter 2024 guidance, forecasting subscription growth to improve in 2Q with normal seasonality and less reopening pressure.
The company’s growth initiatives and focus on break-even free cash flow in the 2024 financial year will be key items to watch out for in the company’s earnings call, they added.
“We continue to see opportunity in better subscription adds in the 2024 financial year on easing reopening pressure, rationalization in hardware competition, better execution on less management restructuring distraction, international growth initiatives, and still low churn,” they wrote.
As such, the analysts reiterated their ‘Buy’ rating on the stock and a $13 price target.
Peloton shares traded at $6.95 on Tuesday afternoon.
- Updated with share price -
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