Will Q2 earnings help the Peloton share price pedal higher?

Peloton Interactive [PTON] is expected to report a huge drop in year-over-year earnings when it reports its second-quarter results on 8 February owing to supply chain issues and high inventories.

This is already putting the Peloton share price under pressure, amid a slew of other problems including rising costs, safety fears and uncertainties surrounding post-pandemic demand.

Analysts at Zacks forecast that the company, known for its indoor exercise bike equipment, will report a loss of $1.18 per share compared with $0.18 in the same period last year.

Peloton has already updated the market with its preliminary Q2 revenues. It expects to post revenues of $1.14bn, up 7% year-over-year and beat guidance of $1.1bn–1.2bn.

Despite numerous headwinds, Peloton’s CEO and cofounder John Foley remains optimistic about the company’s future, even though it may be Foley himself that is weighing the Peloton stock down. “We are taking significant corrective actions to improve our profitability outlook,” he said, citing gross margin improvements, reductions in operating expenses and a shift to a more variable cost structure as steps being taken to “build a more focused Peloton moving forward”.

The company is still trying to cut down its bloated staff, manufacturing and supply chain base, which have hampered earnings in recent months.

Peloton share price stutters

It has been a turbulent period for the Peloton share price and market cap. The Peloton market cap is $8bn now, compared with $48bn in January 2021. The Peloton stock price has tumbled since the start of 2022, down 31.2% year-to-date to close at $24.60 on 4 February.

The Peloton share price has suffered an exaggerated version of the fate of other ‘stay at home stocks’, which investors fear will struggle as economies reopen. While Peloton shares surged 447.9% in 2020 when the company’s popularity peaked, demand for its products has slumped since people have been able to return to gyms and outdoor exercising.

Peloton has also been blasted by its over-expansion in terms of staff numbers and manufacturing. The company expected breakneck demand to continue, but net subscriber numbers have been on the wane for the past few quarters. The fitness group said it had nearly 2.77 million connected fitness subscriptions in Q2, missing guidance of between 2.8 million and 2.85 million, and an average net monthly connected fitness churn of 0.79%.

These issues, as well as safety fears over some of its equipment, product recalls and delayed deliveries, have led Peloton to state that it does not expect to be profitable again until fiscal 2023. As a result, activist investor Blackwells Capital has called for Foley to be fired and for the company to be put up for sale.

With potential buyers including Apple [AAPL], Nike [NKE] and Amazon [AMZN], a high-profile acquisition could give the Peloton share price the boost it needs.

Q1 results failed to make the mark

In its first quarter Peloton posted a loss per share of $1.25, compared with the forecast $1.07 loss. Its revenue grew 6% year-over-year to $805.2m, but fell short of the $810.7m expected by analysts polled by Refinitiv.

“We anticipated fiscal 2022 would be a very challenging year to forecast, given unusual year-ago comparisons, demand uncertainty amid reopening economies, and widely reported supply chain constraints and commodity cost pressures,” Foley told shareholders in a letter after the Q1 results were released.

After the disappointing first-quarter results, Peloton reduced its full-year revenue guidance from $5.4bn to between $4.4bn and $4.8bn.

Foley cited a slow start to the second quarter and “challenged visibility” as the reasons for this decision, according to CNBC.

Peloton shares plummeted 36% after the announcement, echoing the company’s gloomy outlook.

Buyout could be the answer

According to CNN, analysts expect Peloton to post an earnings per share loss of $1.22 and revenues of $1.1bn when it reports second-quarter figures this week.

A miss on these forecasts will send the Peloton share price spinning, but it could hold up if management give any indication that there is truth in the reports of a potential acquisition.

In afterhours trading on Friday 4 February Peloton shares surged around 30% on the news that Nike and Amazon were interested in making a bid.

Looking forward, according to MarketScreener, the stock has a consensus ‘outperform’ rating and an average target price of $47.65.

Peloton remains attractive for buyers given its membership base of 6.2 million, according to a CNBC report. There is still a considerable pool of customers to reach, considering many people are wary of going to gyms due to Covid risk, membership costs or lack of time, among other reasons.

Loop Capital Markets analyst Daniel Adam believes that, given its subscriber numbers, Peloton could be worth as much as $80 per share.

With a healthy subscriber base and the possibility of a high-profile acquisition, the Peloton share price still has potential to move up the gears. Investors will be waiting to see whether Q2 figures encourage any potential bidders to make a move.