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Why Peloton Investors Are Smiling Today

What happened

Well, it’s Friday, and once again, it feels like every stock in the world is getting sold off — with one exception.

Yesterday, as you recall, shares of exercise bicycle maker Peloton Interactive (NASDAQ:PTON) sold off hard on media reports of a planned production shutdown, ultimately ending the day 24% lower than they began it. After close of trading, however, Peloton had some modestly positive news to report — an earnings preannouncement — and today, that news is helping Peloton to evade the continuing stock market meltdown and even bounce back a bit.

As of 10:10 a.m. ET, Peloton stock is up 3.8%.

Person smiling on an exercise bike.

Image source: Getty Images.

So what

As Peloton advised last night, it continues to expect to report earnings on Feb. 8. As of today, however, here’s how the company thinks its numbers will look:

  • Connected fitness subscriptions will miss expectations slightly, coming in at 2.77 million through the end of the fiscal second quarter 2022.
  • Revenue, however, will come in at “approximately $1.14 billion,” or right in the middle of its previous forecast of $1.1 billion to $1.2 billion.
  • Customer churn levels are modest — just 0.8%.
  • And the best news of all: Instead of its previously forecast loss of $325 million to $350 million in adjusted earnings before interest, taxes, depreciation, and amortization, Peloton says it will now lose only $260 million to $270 million.

Yes, you read that right. Despite all the bad news over the past couple of days, Peloton’s loss will be less than feared.

Now what

Management, it seems, is delivering on its promise made last quarter to take “significant corrective actions to improve our profitability outlook and optimize our costs.” In addition to working toward “gross margin improvements” (e.g., by raising the price of its exercise bikes and treadmills), the company is “identifying reductions in our operating expenses.”

Management didn’t specify precisely what this will mean to the company’s bottom line, but we’ll find that out on Feb. 8. In the meantime, at least a handful of analysts are expressing relief over last night’s news. So far this morning, KeyBanc has pronounced Peloton’s news “nominally better” than it expected, R.W. Baird called the preannouncement “reassuring,” and Stifel has upgraded Peloton stock to buy.  

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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