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3 Charts That Should Make You Think Twice Before Buying Peloton Stock

The stock market has been on shaky ground in 2022 as investors adjust to a major shift in economic conditions. Interest rates are on the rise after two years at record lows, and U.S. government stimulus spending to fight the pandemic has mostly dried up.

The potential for an economic slowdown has sent many high-flying technology stocks plunging, especially those that benefited from stay-at-home conditions during the worst of COVID-19. Peloton Interactive (NASDAQ: PTON), which makes at-home exercise equipment with virtual classes, is one of them. Its stock has now lost over 93% of its value since Dec. 2020.

Some investors might think this makes the stock a bargain, but here are three charts that suggest the low stock price doesn't actually present a good value in this case.

1. User engagement has dropped off

Since the pandemic led to the closure of gyms, people had to find other ways to stay active. Doing so at home can be difficult, especially in the absence of proper training and instruction, but Peloton proved to be the ideal solution in those circumstances.

The company's flagship exercise bikes come fitted with digital screens that allow the user to access thousands of classes for all fitness levels, led by world-class trainers. During the pandemic, Peloton saw a strong increase in the number of workouts each user was participating in (on average) each month. But as vaccines rolled out and gyms began to reopen, those numbers sharply reversed.

In hindsight, this might've been a logical, if not obvious, shift. But when customers are using a particular product less frequently, it can lead to significant financial consequences for a company like Peloton.

2. Revenue has stopped growing

One of those consequences is a slowdown in sales. If existing customers are spending less time on their Pelotons in favor of gyms (for example), it's a safe assumption that it might be more difficult to attract new customers.

Peloton's revenue soared to an all-time high of over $4 billion in fiscal 2021. But as fiscal 2022 draws to a close on June 30, the company's results so far, combined with its guidance for the current quarter, indicate the end result will fall short of that record level.

The culprit is the Peloton product segment -- the company is selling far less equipment at the moment. In the first nine months of fiscal 2022, product revenue was down 24% year over year. Subscription revenue for the Peloton app and digital classes was a bright spot, up 71%, but it only makes up about one-third of the company's total revenue base.

3. Peloton is losing (a lot of) money

Unfortunately, it appears Peloton wasn't prepared for the fiscal 2022 drop in revenue. In fact, it has spent $2.25 billion on operating expenses in the first nine months, more than double the $1.08 billion it reported in the prior-year period.

The company ramped up spending across every line item with marketing receiving the largest bump. But overall, more money going out and less revenue coming in can only equal one outcome: a significant hit to Peloton's bottom line. It now stands to deliver its largest fiscal year net loss on record.

Peloton is making moves to right the ship. The company's new CEO is working to deliver a number of initiatives, including a shift in the sales strategy to a more subscription-based model, in order to reduce the upfront cost burden on consumers who want to buy a Peloton product. Additionally, the company has begun to cut expenses by laying off 20% of its workforce earlier this year.

These are positive steps to relieve short-term pressures and chart a new path toward the company's long-term goal of reaching 100 million subscribers, a big leap from seven million today.

But Peloton does face significant challenges. It had just $879 million in cash on its balance sheet as of the most recent quarter, and it's taking on another $750 million through debt financing. That combined figure of over $1.6 billion means the company still simply cannot afford another year like fiscal 2022.

That is one of the primary risks to investors. With economic conditions tightening, it's difficult to predict how strong consumers' appetites will be for Peloton's products in fiscal 2023. Given the company's performance in the current year, there's very little room for error going forward.

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Anthony Di Pizio has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Peloton Interactive. The Motley Fool has a disclosure policy.


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