Peloton Beat Takes Back Seat as Street Probes Where It’s Headed

(Bloomberg) -- Peloton Interactive Inc. was on the rise following a beat-and-raise quarter Tuesday morning, but shares pivoted during its first earnings call as a public company, falling as much as 9.6%. Analysts were broadly positive about its fiscal 2020 first quarter beat-and-raise, but questions about where its business was headed continued to be raised as the company provided details, including around its acquisition of a bike manufacturing partner.

• JPMorgan analyst Douglas Anmuth maintained his overweight rating and price target of $32, saying that while upside was expected, Peloton’s results “exceeded the bar.”
  • Anmuth asked about acquiring its bicycle manufacturing partner Tonic Fitness Technology, to which Chief Executive Officer John Foley replied that while Apple doesn’t own Foxconn, Peloton wanted “a little bit more control” over its supply chain.
• Raymond James analyst Justin Patterson maintained his outperform rating and price target of $32, attributing Tuesday’s share price action to recent IPO performance around earnings.
  • “That seems like more of a statement on market positioning around recent IPOs than Peloton’s fundamentals,” he said in response to emailed questions.
• Bloomberg Intelligence analyst Mandeep Singh said that while Peloton results beat, a good quarter was expected, and questions still remain about its path to profitability.
  • “Peloton starting to lower prices on bikes and treadmills speaks to competition. If the subscription business doesn’t offset the hardware gross margin compression, profits will be weighed down. It all goes back to gross margins and [the company] could be making it more challenging by getting into the weeds with manufacturing.”
• Goldman Sachs analyst Heath Terry also reiterated his buy rating and maintained a price target of $37.
  • Peloton’s outperformance was attributed to better-than-expected product sales with higher connected fitness subscriber net adds.
• DATA
  • PTON has 19 buys, 1 hold, zero sells; average PT $31: Bloomberg data
  • Shares are down 19% since its Sept. 25 IPO versus the Nasdaq Composite’s +4.6%

To contact the reporter on this story: Crystal Kim in New York at ckim426@bloomberg.net

To contact the editors responsible for this story: Brad Olesen at bolesen3@bloomberg.net, Jennifer Bissell-Linsk

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