Peloton's (NASDAQ:PTON) Subscriptions are the Last Line of Defense - Simply Wall St

After 3 consecutive earnings misses, Peloton Interactive, Inc. (NASDAQ: PTON) is closing on the next earnings report.
So far, the situation is grim. The stock has lost over 90% of value off the highs, while the broad market is on shaky legs, especially those pursuing the subscription business models.
See our latest analysis for Peloton Interactive
In its goal to achieve profitability, Peloton is now taking a shot at the strategy that lowers the prices of some exercise equipment while raising the prices of its subscription service. Evidently, the company is trying to capture a broader audience while boosting its profit in the long term.
This should help cut storage costs by helping to offload excess inventory, as one of the often-mentioned points was that Peloton grew too ambitious in pursuing their warehouses and delivery. Yet, if the company sells hardware at a loss, it becomes a problem. These are the numbers we'd have to look for in the next week's earnings report.
Meanwhile, Citi assumed coverage on Peloton with a Buy rating, stating that their restructuring into a more asset-light model could put them on track to achieve positive free cash flow by the second half of FY 2023. Their price target is US$36.
That is an optimistic target for a company searching for a minority investor. Per WSJ, Peloton is looking for a minority owner of up to 20% of the company. At the current valuation, that would be just north of US$1b.
Peloton Interactive has a market capitalization of US$5.6b, so it's too big to fly under the radar. We'd expect to see both institutions and retail investors owning a portion of the company. Our analysis of the company's ownership below shows that institutions own shares in the company.
The picture below shows us the different types of shareholders of Peloton Interactive.
Peloton Interactive already has institutions on the share registry, and they own a significant stake in the company. This can indicate that the company has credibility in the investment community, but it isn't an end-all staple of quality.
You can see Peloton Interactive's historical earnings and revenue below, but there's always more to the story.
Institutional investors own over 50% of the company, so together, they can probably strongly influence board decisions. Hedge funds do not own peloton Interactive. Our data shows that the largest shareholder is Baillie Gifford & Co., with 9.6% of shares outstanding. In comparison, the second and third largest shareholders hold about 9.3% and 7.5% of the stock.
Added all up, 9 of the top shareholders account for roughly 51% of the register, implying that along with larger shareholders, there are a few smaller shareholders, thereby balancing out each other's interests somewhat.
Researching institutional ownership is a good way to gauge and filter a stock's expected performance. The same can be achieved by studying analyst sentiments.
Most consider insider ownership a positive because it can indicate the board is well aligned with other shareholders. However, too much power is concentrated within this group on some occasions.
Our most recent data indicates that insiders own some shares in Peloton Interactive, Inc. The insiders have a meaningful stake worth US$308m. Most would see this as a real positive. Most would say this shows an alignment of interests between shareholders and the board. Still, it might be worth checking if those insiders have been selling.
The general public, who are usually individual investors, holds a 5.4% stake in Peloton Interactive, representing a relatively small class of owners. We'd generally expect to see a higher level of ownership by the general public than this. It's not too concerning, but it is worth noting that retail investors might struggle to influence board decisions.
With ownership of 5.7%, private equity firms can play a role in shaping corporate strategy with a focus on value creation. Some investors might be encouraged by this since private equity can sometimes promote strategies that help the market see the value in the company. Alternatively, those holders might be exiting the investment after taking it public.
If Peloton counted on a leadership change to turn the sentiment around, that strategy hasn't been fruitful. Although, given the broad market weakness, it was a strategy doomed from the start.
If anything, businesses that pursue a subscription-based model (like Netflix) have been suffering lately – not exactly an optimistic omen for Peloton. Given the latest subscription price hikes, everyone will be keeping an eye on the subscription numbers. Effective cost-cutting techniques and proper monetization of that user-base is arguably the best bet that Peloton ever reaches profitability.
We've covered some latest developments on Peloton in this article, but you can find much more on our platform. For example, we've identified 3 warning signs with Peloton Interactive, and understanding them should be part of your investment process. Furthermore, you can access this free report on analyst forecasts for the company.
NB: Figures in this article are calculated using data from the last twelve months, which refer to the 12-month period ending on the last date of the month the financial statement is dated. This may not be consistent with full-year annual report figures.
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Simply Wall St analyst Stjepan Kalinic and Simply Wall St have no position in any of the companies mentioned. This article is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
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