Analysts at Bank of America have repeated their ‘Underperform’ rating on exercise equipment company Peloton Interactive Inc (NASDAQ:PTON) as they wait for subscriber growth to inflect, despite it reporting a quarterly earnings beat.
Peloton shares surged on Thursday after the company, known primarily for its stationary exercise bikes, reported fiscal fourth quarter earnings above estimates.
Connected Fitness subscribers of 2.981 million were also above the Street estimate of 2.976 million however, churn of 1.9% was higher than the 1.7% expected.
Higher churn was attributed to a one-off benefit in the first quarter of 2024, mix shift to secondary market subscribers and the closure of Peloton’s bike rental program.
“Peloton continues to see decelerating new user growth and higher churn, leading to lower-than-expected revenue guidance (both 1Q25 and fiscal FY25),” analysts wrote in a note to clients.
“The company continues to operate without a permanent CEO, which we see as critical for setting long-term strategy and achieving sustainable earnings.”
However, they noted that Peloton has delivered “significantly better” earnings before interest, taxes, depreciation and amortization (EBITDA) and cash flow following $200 million in cost cuts earlier this year and a more balanced approach to customer acquisition, leading to lower sales and marketing expense.
“We would also not be surprised to see another round of opex reductions this fiscal year,” they wrote.
“As tough macro and low subscriber growth hurts topline, Peloton is prioritizing improving profitability and free cash flow. Management is also leaning into secondary market by levying an activation fee on used hardware sales.”
The bank’s analysts maintained their $3.25 price target on Peloton on continued topline and subscriber weakness.
Peloton shares traded hands at $4.65 on Friday morning. The stock has gained almost 50% this week.