Shares of Peloton (PTON) are sliding in afternoon trading after short-seller Citron Research posted a report on the company with a 2020 price target of $5.
CITRON SETS $5 TARGET ON NOW $32 STOCK: On Tuesday, noted short-seller Citron Research published a report on Peloton that was critical. Andrew Left's firm said in the report that "Unless Peloton invents a piece of equipment that works out for you - this is going to $5 [which is still a $1BN-$2BN market cap]." Teasing the report, the firm said in a tweet that "we will be laughing" a year from now at the company's current $10B valuation.
In its report, Citron said that there are "clear flaws" in the Peloton business model and that the company's management team has been "overly promotional" while trying to justify an "unrealistic" valuation that is "disconnected from all reality in the post-WeWork economy." Combined with a share structure the short-seller said is "designed to make long-term shareholders sweat, we have all the makings of a compelling short."
Further, Citron contended that "once you get past management's grandiose talks," there is a company that merely sells hardware and software.
AD BACKLASH: Peloton's latest U.S. ad campaign, "The Gift That Gives Back," has received significant backlash on social media. The ad, which was first released in mid-November and is being shown on network television, as well as on YouTube and other sites, features a woman working out over the course of a year after being gifted a Peloton bike, which struck many viewers as tone deaf, sexist, classist and even "dystopian." A Peloton Bike retails for $2,245, and membership for the company’s interactive classes costs $39 a month. Despite speculation about the stock price drop and the rumors that the ad could be taken off the air, Peloton said it does not believe that any stock movement was tied to the adverse response to the holiday ad and said it stood firmly behind the commercial.
Monica Ruiz, the actress dubbed "Peloton Girl," recently appeared in an ad for actor Ryan Reynolds and his Aviation Gin brand called "Bike Not Included," which poked fun at Peloton. In the new ad, which seemingly picks up from where Peloton's ad left off, the actress is shown being consoled by some friends at a bar, toasting "to new beginnings."
ANALYSTS DEFEND PELOTON FROM AD FLAP: KeyBanc analyst Edward Yruma, who has an Overweight rating and $45 price target on Peloton shares, told investors in a research note that he believes Peloton has one of the strongest growth trajectories in his coverage and that the recent "brouhaha" about a television advertisement actually increases brand awareness. The analyst continued his defense, saying that ongoing store checks point to continued momentum around home trials, and he believes that the program is providing sales with an important tool to close transactions. Additionally, Yruma said his firm's Key First Look Data point to a strong start to the holiday season. Oppenheimer analyst Jason Helfstein raised his price target for Peloton to $38 from $29, in line with peer valuations on gross profit, even though Peloton is anticipated to grow faster than peers. Helfstein told investors in a research note of his own that his bullishness is further supported by strong search trends, website traffic and improving customer satisfaction. Peloton also announced a 33% price reduction in its Digital Membership, which Helfstein said should be a positive catalyst to increase "top of the funnel" growth as 10% of Digital Members convert to Connected Fitness Subscribers.
On Monday, Baird analyst Jonathan Komp said he recently met with Peloton management and came away incrementally more positive regarding its positioning for a strong holiday season. The company said they are disappointed with the interpretation of its "The Gift" commercial but said the controversy is helping drive brand awareness and its loyal members are showing support. The analyst said he expects the company to sustain near-term momentum and to demonstrate a quicker multi-year oath to profitability.
WHAT'S NOTABLE: Following reports, last week Peloton confirmed that it had lowered the price of its digital subscription to $12.99 per month from $19.49. The membership includes access to all its spin classes via the Peloton app. The price of Peloton membership, which requires the company's Bike or Tread, remains $39 per month, the company said in a statement.
PRICE ACTION: Shares of Peloton are down 8% to $31.98 in afternoon trading.
