Peloton Q4 preview: where next for the Peloton share price?

Demand for Peloton’s stay-at-home exercise equipment has exploded during the pandemic, but can it keep up the momentum as it comes up against tougher comparatives and manages the recent recall of its treadmills?

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When are the Peloton Q4 earnings?

Peloton is scheduled to release fourth quarter and full year earnings after US markets close on Thursday August 26.

Peloton Q4 earnings preview: what to expect from the results

This will be a crucial quarter for Peloton as it tries to overcome the recent recall of its treadmills.

The company voluntarily recalled up to 125,000 treadmills in May after the safety regulator told people with pets and young children to stop using them after reports of a swathe of injuries and one death linked to the machines. Having originally fought against the regulator by describing its guidance as inaccurate and misleading, Peloton swiftly apologised and yielded to the request to recall the products.

This is expected to cost around $165 million in lost sales and refunds. Peloton admitted it would have to sacrifice short-term profitability in order to prioritise the safety issues and its customers. The key questions will be how long this will weigh on profitability and whether it will impact long-term demand for its products over the longer term.

Peloton looked to be firing on all cylinders before the recall. It smashed expectations in the third quarter and delivered record revenue and its third consecutive quarterly profit as it continued to benefit from the boom in demand for stay-at-home exercise equipment since the pandemic began. That was driven by Peloton addressing the months-long wait for customers to get their hands on Peloton’s products by investing in its shipping and distribution which it says should return the wait to the more normal timeframe of less than four weeks.

The costs of the recall twinned with the increased investment in shipping, which has seen prices continue to skyrocket this year, are expected to lead to slower topline growth and push Peloton into the red in the final quarter of its financial year.  

Peloton is expected to report fourth quarter revenue of $921.6 million and a net loss of $139.6 million. That would compare to the $607.1 million in revenue and a $89.1 million profit the year before.

If achieved, full year revenue should come in at around $4.00 billion compared to just $1.82 billion the year before, while its net loss is expected to narrow to $17.5 million from $71.6 million.

Peloton said it should end the fourth quarter with 2.3 million connected subscribers. That would be up from 2.08 million three months earlier and more than double the 1.09 million it had a year ago.

Other areas to watch include how the $420 million acquisition of Precor is helping alleviate Peloton’s backlog of orders. Precor provides workout machines to the likes of gyms and hotels and should significantly bolster Peloton’s US manufacturing footprint, with most of its equipment currently made by third-parties in the US or from its plants in Taiwan. The fact it has also decided to build its first US plant is also a firm signal that Peloton should be shipping less foreign-made products in the future. Still, having sites afar in Taiwan will still be critical considering Peloton is continuing to expand after recently entering Australia.

Peloton is likely to go through a bit of a rough patch as it recovers from the recall, and the fact it is starting to come up against tougher comparatives following the boom in demand last year will not help. Growth may slow and its bottom-line will suffer, but Peloton must prioritise safety and protect its brand in order to flourish in the future.

Brokers believe in Peloton’s prospects over the long-term with a Buy rating and average target price of $134.5, suggesting there is over 26% potential upside from the current share price.

Where next for the Peloton share price?

After hitting an all-time high in early January of $171, the Peloton share price has been trending lower. It hit a year to date low of $80 in May before rebounding to $130 in July. However, gains were capped by the descending trendline resistance. 

Peloton trades below the multi-month descending trendline and below the 50 & 200 sma on the daily chart in an established bearish trend. 

The RSI is pointing lower and in bearish territory suggesting that more losses could be on the cards whilst the RSI remains out of oversold territory.  

Immediate support can be seen at $100 round number and June low. Disappointing results could see this level breached opening the door to $80 the yearly low. 

On the flip side, strong earnings and an upbeat guidance could see the buyers tests $170-20 resistance zone made up of the 50 & 200 sma in addition to the descending trendline resistance bringing $130 the July high into focus. 

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