Peloton Stock surges on TikTok deal...can it keep up the pace?

Key Points

• Last week, Peloton announced a partnership with TikTok to bring its workout content to a new fitness hub called #TikTokFitness, causing PTON shares to jumped 9.6% on the news.
• A key contributor to the growth is expected to be the company’s new fitness-as-a-service model whereby consumers can now rent a Peloton bike rather than making an expensive fitness equipment purchase.
• With 14% of the stock’s float in the hands of short sellers, a milder version of past short squeezes could be on Peloton’s path.

In an attempt to revive its stagnant subscriber base, Peloton Interactive, Inc. NASDAQ: PTON is turning to TikTok.

Last week, the connected fitness company announced its own connection with the rising social app that will bring its workout content to a new fitness hub called #TikTokFitness. Peloton touted the move as a promotion of the active lifestyle, but in reality, it's intended to increase a membership count that has fallen flat since climbing above three million in the Spring of 2023. It marks the first time the company will step outside its own channels to produce customized social content like live classes, class clips and celebrity collaborations on a third party platform.

The partnership has good potential to give Peloton a much-needed boost to global brand awareness and usage. TikTok has rapidly ascended to become the world’s top short-form mobile video platform and the third most popular social media app after Facebook and Instagram.

Just seven years since its inception, TikTok has amassed over one billion monthly active users. Nearly one-fourth of the world’s internet users are tuned into the Bytedance video sharing service.

Given TikTok’s immense global appeal and proven ability to influence culture and consumer purchases, the market reacted favorably to the news. On Friday, Peloton shares jumped 9.6% to $6.72, their highest close since August 2023. The 67.8 million shares traded were more than 5-times above normal daily volume. 

Buzz around the meme stock three years removed from reaching $171.09 has picked up in recent weeks because 1) the market’s risk appetite has increased and 2) Peloton’s news flow has been rather bullish.

Why is Peloton stock going up?

Peloton has rallied 40% since November 1st while the S&P 500 has advanced 11%. The outperformance was kickstarted by the company’s better-than-expected fiscal 2024 first quarter release. Although revenue fell 3% year-over-year to $595.5 million, the result was better than analysts expected. More importantly, management asserted that Peloton will return to top line growth in the second half of the year. 

A key contributor to the growth is expected to be the company’s new fitness-as-a-service (FaaS) model. Consumers can now rent a Peloton bike as an affordable alternative to an expensive fitness equipment purchase. The offering seems to be gaining traction.

In a recent company survey, 60% of subscribers said they wouldn’t have joined Peloton had it not been for the flexibility of the rental program. Management forecasts that its bike rental subscription business will grow 90% this year.

Another factor behind the stock’s momentum is rising interest from colleges and pro sports teams to partner with Peloton. In fiscal Q1 alone, the company teamed up with the NBA, WNBA, Liverpool Football Club, the University of Michigan and the New York Road Runners club. It also inked a deal with lululemon. Collaborations with popular sports teams, universities and apparel companies could lead to improved brand awareness and financial performances.

The consensus estimate for fiscal Q2 revenue is $733, which implies an 8% drop from the prior year period. If Peloton’s recent growth initiatives and holiday sales prove strong, the stock could see another high volume gapper. 

What do analysts and the charts say about PTON?

Wall Street isn’t convinced that Peloton’s wild ride is at a turning point. Last week, Bank of America issued a Sell rating on the stock along with a Street-low $4.60 price target. A dozen firms have called PTON a Hold since the fiscal Q1 update and only four have claimed it's now a Buy. The $7.38 consensus price target suggests there is little upside. 

Aside from Peloton’s struggles to build off its pandemic-driven success, analysts are likely concerned about the ongoing lack of profits. The company posted a $0.44 per share net loss last quarter. More losses are expected in the coming quarters amid soft demand trends, supply chain disruptions and increased input and transport costs. The reopened gym headwind probably won’t help, especially during the New Year’s resolution weeks.

The technical analysis paints a different picture. PTON has been bouncing off a rare uptrend line that began in late October 2023. The stock is also benefitting from a pair of bullish chart patterns. A triple bottom that formed in late November and a bullish flag that popped up on December 27th point to an extended rally.

There may be an interesting tug-of-war developing between Wall Street and the retail traders that previously drove PTON to meme stock stardom. With 14% of the stock float in the hands of short sellers, a milder version of past short squeezes could be on Peloton’s path.