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Here's Why Investors Should Retain Peloton Stock Now
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Shares of Peloton Interactive, Inc. (PTON - Free Report) have gained 28.8% in the past three months compared with the industry’s 20.5% growth. The company is making strides in its journey toward sustainable growth, evidenced by its efforts to optimize operations and enhance its product offerings. Also, the focus on software-driven enhancements bodes well. However, the discontinued Bike Rental Program poses concerns.
Growth Drivers for PTON Stock
Expanding Through Strategic Partnerships: Peloton continues to pursue partnerships that broaden its reach and foster profitable growth. A notable collaboration with Lululemon allows studio members to access Peloton content via their Mirror devices. This partnership has delivered positive results with low user churn and incremental subscription revenues. Building on its partnership success, Peloton recently entered into a multi-year content licensing deal with Google Fitbit. This agreement will offer a wide array of Peloton classes to Fitbit users in the United States, the U.K., Canada and Australia.
Focus on Hardware: In its hardware business, Peloton is committed to improving gross margins for its premium Connected Fitness products. The company has expanded its distribution through third-party channels across North America and international markets. To optimize profitability, Peloton is evaluating pricing models, discount strategies and media expenditure, with expectations of growth margin improvements in fiscal 2025.
Peloton is also witnessing substantial progress in the turnaround of Precor, its fitness equipment subsidiary. Strong year-over-year revenue growth has been driven by key product launches, including next-generation cardio consoles and new strength products. Precor has also enhanced its financial performance with improved gross margins and reduced operating expenses.
Software Innovation and Member Engagement: Peloton continues to innovate through software-driven experiences and enhanced content offerings. The company has rolled out new social features like “Find Friends” and is developing others, such as private groups and challenges. These are expected to drive member retention and organic growth. In addition, Peloton is beta testing Personalized Plans and a Strength Plus app to create tailored fitness experiences for its users. The company’s focus on instructor-led content remains central to its strategy. By introducing guest instructors and forming new entertainment partnerships with platforms like AMC+, Kindle and DIRECTV, Peloton is further enhancing the user experience.
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Strategic Initiatives to Capture New Subscribers: Peloton’s focus on the secondary market is another strategic move showing promise. The company reported a 16% year-over-year increase in paid connected fitness subscriber additions in the fiscal fourth quarter. Many of the customers are showing lower churn rates than rental subscribers. To capitalize on this, Peloton has introduced a one-time $95 used equipment activation fee in the United States and Canada, offering new members onboarding experiences similar to those who purchase new equipment. This fee represents a potential new revenue stream for the company while enhancing customer retention and engagement.
Focus on Cost Optimization: Peloton’s $200 million cost restructuring plan, announced in May 2024, highlights its commitment to cutting costs while driving profitability. During the fiscal fourth quarter, the company reported significant reductions in the areas of brand and creative spending, retail costs and headcount, leading to a 19% year-over-year drop in total sales and marketing expenses. PTON optimized its media investment, targeting an improved LTV-to-CAC ratio. These efforts are expected to positively impact Peloton's bottom line in fiscal 2025.
Peloton’s Concerns
Peloton’s decision to cease its original bike rental program complicates its growth outlook. The company acknowledged that the rental program was profitable with refurbished inventory, but faced financial challenges when relying on new inventory to meet rental demand. Due to lower inventory levels, Peloton opted to discontinue the rental program, impacting its revenue stream. Although the company has seen increased demand for its more premium Bike+ model, the loss of revenues from the discontinued original bike rental program could weigh on the company’s financials.
Bottom Line
Peloton’s robust performance, strategic partnerships and cost-cutting initiatives underscore its commitment to achieving sustainable growth. While the discontinuation of the bike rental program poses a short-term challenge, Peloton’s focus on premium products and innovative strategies should provide investors with long-term value. Holding onto Peloton stock could be a smart move as the company continues to refine its business model and seize growth opportunities in the evolving fitness landscape.
Norwegian Cruise Line has a trailing four-quarter earnings surprise of 5.7%, on average. The stock has rallied 25.7% in the past year. The Zacks Consensus Estimate for NCLH’s 2024 sales and earnings per share (EPS) calls for growth of 9.8% and 122.9%, respectively, from the year-ago levels.
DoubleDown Interactive has a trailing four-quarter earnings surprise of 26%, on average. The stock has surged 86.7% in the past year. The Zacks Consensus Estimate for DDI’s 2024 sales and EPS indicates an increase of 12.6% and 15.8%, respectively, from the year-ago levels.
Carnival has a trailing four-quarter earnings surprise of 318.1%, on average. The stock has increased 41.5% in the past year. The Zacks Consensus Estimate for CCL’s 2025 sales and EPS indicates an increase of 4.5% and 28.3%, respectively, from the year-ago levels.
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Here's Why Investors Should Retain Peloton Stock Now
Shares of Peloton Interactive, Inc. (PTON - Free Report) have gained 28.8% in the past three months compared with the industry’s 20.5% growth. The company is making strides in its journey toward sustainable growth, evidenced by its efforts to optimize operations and enhance its product offerings. Also, the focus on software-driven enhancements bodes well. However, the discontinued Bike Rental Program poses concerns.
Growth Drivers for PTON Stock
Expanding Through Strategic Partnerships: Peloton continues to pursue partnerships that broaden its reach and foster profitable growth. A notable collaboration with Lululemon allows studio members to access Peloton content via their Mirror devices. This partnership has delivered positive results with low user churn and incremental subscription revenues. Building on its partnership success, Peloton recently entered into a multi-year content licensing deal with Google Fitbit. This agreement will offer a wide array of Peloton classes to Fitbit users in the United States, the U.K., Canada and Australia.
Focus on Hardware: In its hardware business, Peloton is committed to improving gross margins for its premium Connected Fitness products. The company has expanded its distribution through third-party channels across North America and international markets. To optimize profitability, Peloton is evaluating pricing models, discount strategies and media expenditure, with expectations of growth margin improvements in fiscal 2025.
Peloton is also witnessing substantial progress in the turnaround of Precor, its fitness equipment subsidiary. Strong year-over-year revenue growth has been driven by key product launches, including next-generation cardio consoles and new strength products. Precor has also enhanced its financial performance with improved gross margins and reduced operating expenses.
Software Innovation and Member Engagement: Peloton continues to innovate through software-driven experiences and enhanced content offerings. The company has rolled out new social features like “Find Friends” and is developing others, such as private groups and challenges. These are expected to drive member retention and organic growth. In addition, Peloton is beta testing Personalized Plans and a Strength Plus app to create tailored fitness experiences for its users. The company’s focus on instructor-led content remains central to its strategy. By introducing guest instructors and forming new entertainment partnerships with platforms like AMC+, Kindle and DIRECTV, Peloton is further enhancing the user experience.
Image Source: Zacks Investment Research
Strategic Initiatives to Capture New Subscribers: Peloton’s focus on the secondary market is another strategic move showing promise. The company reported a 16% year-over-year increase in paid connected fitness subscriber additions in the fiscal fourth quarter. Many of the customers are showing lower churn rates than rental subscribers. To capitalize on this, Peloton has introduced a one-time $95 used equipment activation fee in the United States and Canada, offering new members onboarding experiences similar to those who purchase new equipment. This fee represents a potential new revenue stream for the company while enhancing customer retention and engagement.
Focus on Cost Optimization: Peloton’s $200 million cost restructuring plan, announced in May 2024, highlights its commitment to cutting costs while driving profitability. During the fiscal fourth quarter, the company reported significant reductions in the areas of brand and creative spending, retail costs and headcount, leading to a 19% year-over-year drop in total sales and marketing expenses. PTON optimized its media investment, targeting an improved LTV-to-CAC ratio. These efforts are expected to positively impact Peloton's bottom line in fiscal 2025.
Peloton’s Concerns
Peloton’s decision to cease its original bike rental program complicates its growth outlook. The company acknowledged that the rental program was profitable with refurbished inventory, but faced financial challenges when relying on new inventory to meet rental demand. Due to lower inventory levels, Peloton opted to discontinue the rental program, impacting its revenue stream. Although the company has seen increased demand for its more premium Bike+ model, the loss of revenues from the discontinued original bike rental program could weigh on the company’s financials.
Bottom Line
Peloton’s robust performance, strategic partnerships and cost-cutting initiatives underscore its commitment to achieving sustainable growth. While the discontinuation of the bike rental program poses a short-term challenge, Peloton’s focus on premium products and innovative strategies should provide investors with long-term value. Holding onto Peloton stock could be a smart move as the company continues to refine its business model and seize growth opportunities in the evolving fitness landscape.
PTON’s Zacks Rank & Stocks to Consider
Peloton currently carries a Zacks Rank #3 (Hold).
Some better-ranked stocks in the Zacks Consumer Discretionary sector are Norwegian Cruise Line Holdings Ltd. (NCLH - Free Report) , DoubleDown Interactive Co., Ltd. (DDI - Free Report) and Carnival Corporation & plc (CCL - Free Report) . NCLH & DDI each sport a Zacks Rank #1 (Strong Buy), whereas CCL carries a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
Norwegian Cruise Line has a trailing four-quarter earnings surprise of 5.7%, on average. The stock has rallied 25.7% in the past year. The Zacks Consensus Estimate for NCLH’s 2024 sales and earnings per share (EPS) calls for growth of 9.8% and 122.9%, respectively, from the year-ago levels.
DoubleDown Interactive has a trailing four-quarter earnings surprise of 26%, on average. The stock has surged 86.7% in the past year. The Zacks Consensus Estimate for DDI’s 2024 sales and EPS indicates an increase of 12.6% and 15.8%, respectively, from the year-ago levels.
Carnival has a trailing four-quarter earnings surprise of 318.1%, on average. The stock has increased 41.5% in the past year. The Zacks Consensus Estimate for CCL’s 2025 sales and EPS indicates an increase of 4.5% and 28.3%, respectively, from the year-ago levels.