Why Peloton Stock Plummeted 27% in April

Investors don’t see a rosy future, and it’s only getting worse.

Shares of connected fitness company Peloton Interactive (PTON 2.95%) stock dropped 27% in April, according to data provided by S&P Global Market Intelligence. While there wasn’t any significant news in April, it was a continuation of a slide that’s been ongoing and was reinforced with uninspiring results released in February.

Things aren’t going well in Peloton land

Peloton rocketed to stardom early in the pandemic when fitness enthusiasts had to stay home. Affluent exercisers who could no longer access their gyms or run outdoors flocked to Peloton’s digitally enhanced machines, which provide a connection to like-minded fitness enthusiasts through live classes.

However, it made some mistakes in the aftermath. Mistakes or not, demand has trickled as the world and fitness centers are open again. Putting the internal and external factors together doesn’t make for a pretty picture for Peloton and its prospects.

The founder-CEO exited two years ago, and Netflix veteran Barry McCarthy took over. However, even though the company has attempted a varied array of ventures and initiatives, performance continues to be bleak.

Peloton announced McCarthy’s departure as CEO this morning, along with a 15% reduction in corporate headcount, or about 400 jobs. Peloton chairperson Karen Boone and Peloton director Chris Bruzzo will co-run the company while it searches for a new CEO.

It’s aiming for a complete reorganization, cutting down its showroom space and reinventing its marketing strategy. It’s anticipating its efforts will result in a reduction of annual run-rate expenses of at least $200 million by the end of fiscal 2025 and lead to consistent positive free-cash-flow generation.

The results continue to disappoint

Peloton announced fiscal third-quarter (ended March 31) results at the same time. Total revenue declined 3% year over year in the quarter, although subscription revenue increased 3%. Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) turned positive at $5.8 million after an $18.7 million loss last year, and net loss improved from $275.9 million last year to $167.3 million this year. It generated $8.6 million in positive free cash flow after $55.3 million in negative cash flow last year.

Ending paid connected fitness subscriptions fell 1% from last year, and paid app subscriptions dropped 27%.

As of this writing, the market is reacting positively to the new developments. But the company is in a precarious position right now, and things could go both positively and negatively. Investors should sit on the sidelines until there’s greater stability.

Jennifer Saibil has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Netflix and Peloton Interactive. The Motley Fool has a disclosure policy.

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