about 4 years ago • 2 mins
Short-selling specialist investor Citron Research has a reputation for being acerbic – but a research note out Tuesday predicting shares of exercise bike guru Peloton will fall to $5 in 2020 may leave a bitter taste in the mouth… 😖
Peloton peddles luxury (expensive) home workout equipment as well as standalone subscriptions video-linking fitness nuts to instructors. In its last financial year the company doubled revenue and subscribers – but high marketing costs and accounting problems helped it to a $200 million loss four times bigger than a year before.
In September Peloton nevertheless joined the host of companies selling shares this year in an initial public offering (IPO). It didn’t work out brilliantly: despite raising $1.2 billion, the company's stock unconventionally fell on its first day of trading. And while it's risen since, a widely derided advertisement combined with Citron’s pessimistic price tag has given Peloton a week to forget.
Tuesday’s research note transcends accusations of faddishness and dwindling reach to detail flaws in Peloton’s business model. As well as competitors creating more innovative, diverse, and affordable products, the company's contending with legal issues over its formerly unique leaderboard tech and workout soundtracks – not to mention leadership criticisms 👎
Citron thinks – especially post-WeWork – that Peloton’s current stock market valuation looks unrealistic. Rather than being valued as a tech company, it should instead be viewed as an exercise equipment maker; and even when compared to other subscriber-based businesses, Citron believes Peloton is overpriced.
The company’s share price duly fell 7% on Tuesday to $32. And while a recent subscription price cut and the launch of new Amazon Fire and Apple Watch apps could yet bring in more cash – with some analysts predicting Peloton’s stock will hit $50 next year – Citron is warning investors that much of the exercise bike company hype is mere spin.
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