Peloton faces pandemic uncertainties as it launches
latest treadmill in U.S
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[August 25, 2021] By
Joyce Philippe
(Reuters) - Peloton Interactive Inc
investors want answers to two questions when the company reports results
on Thursday: Will the Delta coronavirus variant drive a new surge in
sales, and are customers ready to look past a recall by the exercise
bike and treadmill makers?
When it comes to COVID, most analysts say it is too early to predict if
the stay-at-home stock will get another pandemic-fueled boost as
vaccines could bolster confidence to leave home to work out at gyms. The
launch of its new treadmill in the United States next week comes at an
opportune time.
Whether due to Delta or delays in workers returning to the office, use
of independent gyms was down by 8% compared with pre-pandemic levels
while interest in digital workouts and home equipment rose 21%,
according to consulting firm ClubIntel.
“If the Delta variant continues to delay the return to normality -- and
worse yet, if it leads to incremental gym closures come winter time -- I
do think that could be a positive catalyst for Peloton,” said James
Hardiman of Wedbush Securities. He added that “it's way too early to
make that assessment right now.” He downgraded Peloton shares from
outperform to neutral on July 14 due partly to uncertain future demand.
The stock is down 34% from its high on Jan. 14.
Cowen analyst John Blackledge maintains an outperform rating, noting a
survey that suggests consumer attitudes on returning to gyms worsened in
July given the rise of the Delta variant, which could drive near-term
demand.
Peloton’s new treadmill, analysts say, is key to its next leg of
potential sales growth and putting behind acostly recall of its exercise
machines over safety reasons.
Peloton’s shares plummeted more than 15% in May after it recalled its
Tread+ treadmill. Peloton initially continued to sell the Tread+ despite
multiple injuries and a child’s death in March from being pulled under
the machine.
The lower-priced Tread will debut in the United States for $2,495. It
had launched in Canada and the United Kingdom but was recalled in May
for a manufacturing problem. Peloton announced it will be released in
the United States on Aug. 30 after finding a fix for faulty screws that
caused the touchscreen console on the Tread to fall off.
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A Peloton exercise bike is seen after the ringing of the opening
bell for the company's IPO at the Nasdaq Market site in New York
City, September 26, 2019. REUTERS/Shannon Stapleton/File Photo
"The success of Tread could mark an inflection point, given Peloton to date has
relied on the popularity of its Bike and Bike+ products, while treadmills as a
category represent a larger market," Blackledge added.
Pelton is expected to report $922 million in revenue for the fourth quarter that
ended June 30, up 52% from a year ago, according to an average of analyst
estimates based on Refinitiv data. Net income was expected to be a loss of
$137.9 million or 45 cents a share, compared with a profit of $89.1 million or
27 cents a share a year earlier.
Although Peloton has suffered some recent supply chain challenges, it may be
equipped to handle a potential boost in demand after investing $100 million to
expedite overseas and air shipping from its manufacturing facility in Taiwan.
The company is also expected to capitalize on its acquisition of equipment
manufacturer Precor and is currently building a new productionplant in Ohio,
which will open in 2023.
The company is also expected to announce plans to continue international
expansion following its entry into the Australian market in July. According to
Loop Capital analyst David Adam, Peloton is just scratching the surface of its
possible customer base, with roughly 5.4 million total Peloton members, and 2
million being “connected fitness” subscribers who pay monthly fees in order to
use the company’s video workouts and equipment.
As of 2020, the global gym industry was worth $96.7 billion with more than 184
million gym members in total, according to the International Health, Racquet and
Sportsclub Association (IHRSA).
(Reporting by Joyce Philippe in New York; Editing by Lisa Shumaker)
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