Peloton Shares Slide After Morgan Stanley Web Traffic Warning
All eyes are on Peloton for its next earnings call, slated for May 10
Peloton has been on a mission to write its comeback story, but shares of the connected fitness giant dipped after Morgan Stanley issued a warning that Peloton’s web traffic declined in its fiscal third quarter.
Peloton shares slid nearly 12% on Wednesday in response to the note to investors, the largest drop for the connected fitness company since October.
In the note, Morgan Stanley analyst Lauren Schenk warned clients that the future could look murky for Peloton, writing that web traffic for the company fell 27% in the third quarter compared to the prior-year quarter.
The traffic decline is the highest since Peloton opened a subscription, although the connected fitness company recently outperformed its expectations in subscription revenue.
“The company struggled to maintain the momentum observed during the heavily promotional holiday season,” Schenk wrote in the note to clients. “Although web traffic is still above pre-COVID levels, the 2-y/y trends have continued to deteriorate, failing to find the stability needed for a return to growth, in our view.”
“It is increasingly unclear where new, highly profitable demand could come from,” Schenk added of Peloton.
According to Bloomberg, 12 analysts have buy ratings on Peloton’s stock, 14 say hold, and four say to sell.
Dave Briggs from the Yahoo Finance Live team said the takeaway is that Morgan Stanley doesn’t see any “real catalysts for growth down the road.”
Peloton CEO Barry McCarthy has maintained confidence in the connected fitness brand after emerging from retirement to course-correct the company that was once at the top of its game during the height of the pandemic.
He marked his first anniversary at the company in February.
“We outperformed in the quarter. The good news is we outperformed,” McCarthy said on Q2’s earning call. “The bad news is the accuracy of our forecasting, our ability to forecast the business, and particularly given the many changes we made in the business model, is not as highly evolved yet as it will be.”
He acknowledged that consumer behavior has shifted, but Peloton is still unable to pinpoint the change, although the company generated more revenue from subscriptions than hardware sales for the third consecutive quarter.
“There’s some new normal that’s happening, and I don’t feel like we’ve quite grasped what it is,” he said.
However, McCarthy is certain of one point: he’s all in on Peloton’s app.
“Maybe we’ll see the all-access subscription hardware business or maybe not, I don’t really care… the path to the promised land is the app, I think. At least, that’s how I conceptualize it, and that’s the opportunity we’re trying to pursue,” he told investors on the Q2 call.
The connected fitness brand is aiming to attract at least one million prospective members to trial its Peloton app.
Peloton’s next earnings release is expected May 10.
