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The bull case for Peloton right now isn't crazy

·Senior Reporter
·6-min read
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Peloton’s (PTON) shares have been in free fall in recent months, but some bulls still believe the connected fitness company can make a comeback.

It's perhaps counterintuitive, as Peloton's shares have declined about 85% over the last year, and this month, the stock hit an all-time low. This week, Peloton shares took another hit when UBS issued a downgrade, citing fears about falling demand and the high costs of acquiring customers. A year ago, Peloton shares were trading north of $100, and they closed Wednesday at $14.42 a pop.

This looks rough, but there's evidence to suggest that Peloton shares have fallen too far.

“When I looked at it last year at $100, I was pretty bearish, but you have to really dislike the fundamental story to not like it at $15,” said Bernstein analyst Aneesha Sherman.

So, what then is the bull case for Peloton? It's all about the strength of the product and brand. Peloton started out as a company that sought to offer the polish, community, and fun of a boutique fitness studio at home. It's most known for its sleek stationary bike where you can take virtual classes with instructors who'd gained followings across the country.

For instance, right now, Andrew Boone, an analyst at Citizens-owned JMP Securities, believes Peloton's brand-awareness is at an all-time high. That brand-awareness counts for a lot, especially as the company looks to reduce the barriers to entry for customers who've historically felt Peloton products were out-of-reach, as it tests out new pricing models. Previously, a Peloton bike could have run you as much as $2,035, though now the highest-priced bike is $1,735, with payment plans available.

Sherman, who believes in the strength of Peloton's products, told Yahoo Finance that there's “a lot of upside" to these pricing efforts.

BROOKLYN, NY - JULY 8: Peloton trainer Cody Rigsby poses for a portrait in Domino Park in Brooklyn, N.Y., on Thursday, July 8, 2021. (Photo by Bryan Anselm For The Washington Post via Getty Images)
BROOKLYN, NY - JULY 8: Peloton trainer Cody Rigsby poses for a portrait in Domino Park in Brooklyn, N.Y., on Thursday, July 8, 2021. (Photo by Bryan Anselm For The Washington Post via Getty Images)

Additionally, though Peloton has competitors, there's no one market leader who's poised to imminently unseat Peloton in the public imagination. Sherman thinks that, while the instinct is to compare Peloton to other fitness hardware makers, these companies aren't its biggest competitors.

“The experience and connectivity is key to Peloton, so their real competitors are other health and wellness ecosystems that serve as a focal point in a consumer’s fitness journey,” she said.

Competitors may include Nike (NKE), Apple (AAPL), and Lululemon (LULU), which have all invested in building out their own fitness-focused apps and ecosystems.

'They clearly over-invested in their business'

To be sure, Peloton's operational missteps during COVID have been significant, as supply chain issues have mounted and safety incidents have caused a firestorm. In 2021, a 6-year-old child died in an accident linked to the Peloton treadmill, leading to a recall. There was also a strange cultural moment in which Mr. Big's death was tied to a Peloton in the "Sex and the City" reboot, and Peloton responded by filming a commercial resurrecting him with Chris Noth, the actor who had long played Mr. Big. Noth was subsequently accused of sexual assault, and Peloton scrapped the commercials, a PR disaster the company didn't need.

Still, some of Peloton's mistakes resemble those made by other e-commerce companies that saw a massive surge in pandemic popularity, according to Boone.

“They clearly over-invested in their business throughout COVID,” he told Yahoo Finance. “They invested in terms of supply chain, and in the business. Broadly, it’s been a surprising trend over the last two quarters that everyone in e-commerce over-invested in their business because we all thought this was going to go on forever.”

New York - NEW YORK - MAY 05: A woman walks in front of a Peloton store in Manhattan on May 05, 2021 in New York. Peloton company has recalled both of its treadmill models after the death of a 6-year-old child and been received 72 reports of adults, children, pets injured, the company and the US Consumer Product Safety Commission announced. (Photo by John Smith/VIEWpress)
New York - NEW YORK - MAY 05: A woman walks in front of a Peloton store in Manhattan on May 05, 2021 in New York.. (Photo by John Smith/VIEWpress)

To Sherman, Peloton is in the midst of a correction that's impermanent, and she believes that there's still a lot we don't know — including what the company's true growth rate even is. Time will start to smooth out some of those edges and uncertainties, she says.

“They’re unwinding mistakes of the past in the way that the company has been run,” Sherman said. “At the same time, they’re trying to figure out what their steady year-over-year growth rate is, since it’s been such a noisy couple of years.”

Cards on the table

Disclosure time. I've used my parents' Peloton gear, and love it. When I visit my folks, I'm psyched to jam to '90s grunge and pop-punk on their bike. I'm not the only one, either. My editor's a huge Peloton fan too; we frequently talk about how much time it saves busy parents. Boone also loves the bike. When push comes to shove, Peloton’s story is ultimately bolstered by the company’s exceptional, category-leading core product, Boone told Yahoo Finance.

“At the end of the day, the entirety of our thesis is saying that the product is incredible,” he said. “I don’t know how this shakes out yet, but I’m pretty sure that they’re going to be able to work it out because of how good the product is.”

From Boone's perspective, Peloton's key challenge moving forward is getting butts in seats because, once consumers step onto a Peloton bike in particular, they're not terribly likely to leave. In its most recent earnings, Peloton's subscriber churn rate, or the percentage of customers who stopped subscribing, clocked in at less than 1%

“Peloton has historically been able to retain customers really, really well, so it’s just a matter of getting people over the hurdle of just getting on the product,” he said.

The company's also in the process of releasing a rower, further increasing the pool of consumers who may be interested in — and eventually hooked on — the Peloton ecosystem. Though the company's challenges ahead are legion and there's no shortage of non-believers, there's still something resonant about the case that Boone and Sherman make: that the strength of Peloton's products matter and just may be enough to carry the company through.

Maybe it's because, when I visit my parents soon, I know I'll end up on their porch, seated squarely on their Peloton rocking out to Green Day.

Allie Garfinkle is a senior tech reporter at Yahoo Finance. Find her on twitter @agarfinks.

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