Analysts Positive on Peloton's Ongoing Restructuring, Risk/Reward 'Increasingly Attractive'

(Updated - August 15, 2022 7:26 AM EDT)

It was reported on Friday afternoon that Peloton (NYSE: PTON) told employees it will slash 780 jobs, close some stores and increase prices on some equipment.

Moreover, the company said it is exiting last-mile logistics and closing its remaining warehouses as it shifts to third-party vendors.

Peloton said an “aggressive” reduction in the number of stores will begin in 2023, although it is yet unclear how many stores out of a total of 86 will be closed.

“The shift of our final mile delivery to 3PLs will reduce our per-product delivery costs by up to 50% and will enable us to meet our delivery commitments in the most cost-efficient way possible,” McCarthy wrote in a memo to employees seen by CNBC.

“These expanded partnerships mean we can ensure we have the ability to scale up and down as volume fluctuates.”

Peloton investors weighed in positively on the news with shares closing over 13% higher on Friday.

Here’s what Peloton analysts have to say about the developments on Friday:

Piper Sandler’s Edward Yruma: “Risk/reward prospects are looking increasingly attractive. PTON has accomplished many of the restructuring activities necessary to stabilize the business. We think existing user engagement remains strong and PTON may be able to consolidate its position within connected fitness given the difficulty of raising capital for private companies. At this point, we think the big question centers around when will demand stabilize, and we still struggle with long-term TAM – hence we reiterate our Neutral rating.”

JPMorgan analyst Doug Anmuth: “We remain positive on PTON shares as the company continues to shift its cost structure from fixed to variable with an eye toward turning FCF positive in the back half of FY23… All of these strategic changes effectively dismantle PTON’s vertical integration—a key part of the bull thesis a few years ago— but they are necessary given recent growth rates, still-challenged cash flow, seasonality in the business, & macro uncertainty.”

Telsey Advisory Group analyst Dana Telsey: “We continue to believe it is early days in the formation of Peloton's new strategic direction, and it will take 12-24 months to have the pieces in place… Given the lack of visibility into demand levels, profitability, and cash flow, we maintain our Market Perform rating.”

By Senad Karaahmetovic

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