UBS lowers Peloton stock price target amid uncertainty over subscription growth

UBS made a major change to Peloton Interactive's (NASDAQ: NASDAQ: ) financial outlook on Tuesday, lowering its price target on the stock to $2.50 from the previous price of $4.00, while maintaining a sell rating.

The company cited continued uncertainty about subscription growth and the potential to generate positive cash flow through growth as the main reasons for the adjustment.

The UBS analyst expressed concern about Peloton's revenue and profit forecasts, noting the challenges the company faces in converting app users into connected fitness users. Despite recent improvements to the Peloton app in May, conversion rates have remained disappointing, prompting speculation that the company may need to reevaluate its cost structure.

In March, Peloton's website saw a positive trend in engagement traffic, which may indicate growing interest in the company's products. Interactive visits are defined as total visits minus bounces, which are visits where users leave without taking any action. The rise followed a decline in January and a modest increase in February. The improvement in March was particularly significant against the backdrop of a significant -28% drop in interactive visits in the same month last year.

The analyst noted that while demand has grown, it is important to remain cautious. Major promotions earlier this year may have temporarily inflated these metrics. According to reports, investors are now focused on the company's connected fitness subscription growth in 2025, given that the tiered app membership approach and relaunched apps have not led to expected connected fitness subscription growth.

Investment Professional Insights

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As Peloton Interactive (NASDAQ: PTON ) grapples with financial and operational challenges, current InvestingPro data provides a deeper look into the company's market position. Peloton has a market capitalization of $1.21 billion and a negative price-to-earnings ratio of -1.33, highlighting the company's profitability issues. Revenue trends are also concerning, with a 10.55% decline in the trailing 12 months to Q2 2024, reflecting the difficulty in maintaining growth. In addition, the company's gross profit margin is 38.59%, showing that although Peloton's products can maintain reasonable profit margins, the overall financial situation is affected by other operating expenses.

It's clear from InvestingPro Tips that Peloton is heavily operating with debt and is burning through cash quickly, which could make interest payments difficult. The price of the stock fluctuates greatly. Last month, the total price return fell sharply by 22.99%, and the decline in the past year was as high as 62.84%, indicating that investors are skeptical of the company's future prospects. Despite these challenges, Peloton does have liquid assets in excess of its short-term obligations, providing some financial flexibility in the near term.

Investors considering Peloton stock should note that analysts don't expect the company to be profitable this year, and the stock has underperformed recently. For those looking for more insights, there are more InvestingPro tips available, which can be accessed at coupon code PRONEWS24 Get an additional 10% off annual or annual Pro and Pro+ subscriptions, and discover a total of 13 additional InvestingPro tips to inform your investment decisions.

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