Shares of Peloton (PTON) are sliding on Monday despite Wall Street analysts being nearly unanimous in assigning buy-equivalent ratings as they started coverage of the stock after the company's post-IPO quiet period came to an end. The bullish views were mostly based on the large market opportunity seen ahead and Peloton's advantage as a "strong" first mover.
BUY PELOTON: In a research note to investors, KeyBanc analyst Edward Yruma initiated coverage of Peloton with an Overweight rating and $32 price target. The analyst believes Peloton is transforming health and wellness and is "one of the most compelling growth opportunities" in consumer/internet. Management remains focused on growth, so EBITDA breakeven could be some time away, although he thinks the subscription business will see a 520 basis point margin expansion by 2022.
Also starting coverage of the shares with an Outperform rating and a $29 price target, Oppenheimer analyst Jason Helfstein argued that the company has a "strong" first mover advantage as it redefines fitness, given "strong" unit subscription economics, forecast at 70%-plus over time, low churn, and high subscription growth of 108% in fiscal year 2019. Citing the company’s “rapid” growth and high margins, William Blair analyst Ralph Schackart initiated coverage of Peloton with an Outperform rating. The analyst also expects subscribers to almost quadruple to 1.9M by the end of fiscal 2022.
Voicing a similar opinion, SunTrust analyst Youssef Squali started coverage of Peloton with a Buy rating and $30 price target as he is positive on the company's strong brand recognition thanks to its first mover advantage and its "highly engaged" user base. Squali also cited the growth in Peloton's "competitive moat," high-margin recurring subscription revenues, positive secular wellness trends, and growing total addressable market with more geographies, verticals, and price points.
Meanwhile, Needham analyst Laura Martin told investors in a research note of her own that she is positive on Peloton’s ability to increasingly monetize its installed base of connected Bikes and Treads that currently numbers 1.4M unique monthly users by selling more fitness products and services, as it becomes an aggregator of fitness video content from other sources. The analyst initiated coverage of the shares with a Buy rating and $30 price target.
Also starting coverage of Peloton with a Buy rating and $35 price target, Stifel analyst Scott Devitt said he sees a "long runway" in the U.S. and believes Peloton international growth story is "waiting to happen." Additionally, Stifel added Peloton to its Select List, while removing Alibaba (BABA) from it. Goldman Sachs, Raymond James, JMP Securities, Barclays, UBS, MKM Partners, Evercore ISI, JPMorgan, Canaccord, Cowen and Telsey Advisory also initiated coverage of Peloton with buy-equivalent ratings.
ON THE SIDELINES: Back on October 10, MKM Partners analyst Rohit Kulkarni started coverage of Peloton with a Neutral rating and $24 price target. The analyst acknowledged that the stock offered upside potential in terms of near-term revenue estimates, but said he still saw risk over the medium-term as comps become tougher. Kulkarni is also concerned with the "lack of a tangible and incremental product catalyst" for Peloton. The analyst's conversations with investors regarding Peloton revealed a "bifurcated sentiment" on the stock, with bulls pointing to gross margin expansion potential and international opportunity while bears warn about competitive headwinds and macro slowdown concerns, Kulkarni added.
PRICE ACTION: In afternoon trading, shares of Peloton have dropped about 4% to $22.64. Peloton opened on September 26 at $27.00 and closed its first trading day at $25.76 per share. The company had priced 40M shares at $29.00, at the high end of the $26.00-$29.00 range set for its initial public offering.