Peloton Interactive Inc. picked up another sell-equivalent rating on Thursday as Bank of America Corp. downgraded the fitness company on concern around the outlook for subscriber results.
Analyst Curtis Nagle said his review of three years of data for top Peloton cycling instructors shows a steep drop in the number of classes taken per subscriber, signaling declining user engagement. Meanwhile, consumers who subscribed to Peloton’s fitness programs during the Covid-19 pandemic are nearing the average user lifetime of about five years, further increasing the risk of subscriber churn.
“Increased churn coupled with tepid new subscriber growth also risks Peloton’s targets for positive Ebitda and cash flow which are not achievable without revenue growth or another substantial round of expense cuts,” Nagle wrote in a note to clients.
Its shares closed down 0.2% on Thursday after earlier dropping as much as 5.6%. Peloton shares are down 97% from a peak in January 2021 as the company has faced slowing demand with people returning to offices and gyms following the pandemic. The company has also struggled with several product recalls due to safety issues with exercise bike seat posts and treadmills.
Nagle cut his rating on Peloton shares to underperform from neutral and lowered his price target to $4.15 from $6.50. Peloton has eight buys, 16 holds and five sell ratings among analysts tracked by Bloomberg, and the average price target of $7.56 implies nearly 60% return potential over the next 12 months.
Peloton is expected to report fiscal first-quarter earnings next month. JPMorgan Chase & Co. analyst Doug Anmuth anticipates the company will deliver results that are in line with Wall Street’s expectations, though a challenging economic backdrop has likely weighed on demand for its products. He lowered his price target for shares to $10 from $12 but reiterated his overweight rating, anticipating that Peloton’s brand relaunch and other initiatives will fuel growth in the back half of its fiscal year.
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