Time to Unload Peloton Stock

Connected home fitness equipment maker and platform Peloton NASDAQ: PTON stock has fallen over (-85%) off its pandemic highs at $171.09. A string of bad news and miscalculations caused shares to fall out of favor as the sentiment in the stock has gotten very bearish. The only respite was a takeover rumor that caused a short squeeze on a horrendous fiscal Q2 2022 earnings report. Unfortunately, the sell-off in the benchmark indexes on interest rate hikes and the Russian invasion of Ukraine caused shares to bleed back down under $30. The new CEO also dashed takeover rumors when he proclaimed that he was “here for the comeback story”, just what investors didn’t want to hear. Investors can utilize opportunistic exit levels on coils to unload shares of this unprofitable former momentum stock before it falls into the teens.    

Q2 Fiscal 2022 Earnings Release

On Feb. 8, 2022, Peloton released its fiscal second-quarter 2022 results for the quarter ending December 2021. The Company reported earnings-per-share (EPS) losses of (-$1.39) versus analyst estimates for a loss of (-$0.92), a (-$0.47) miss.

Downside Guidance

Peloton lowered its revenue guidance for fiscal Q3 2022 to come in between $950 million to $1 billion versus $1.23 billion consensus analyst estimates. The Company expects approximately 2.93 million connected fitness subs and adjusted EBITDA between (-$140 million) to (-$125 million). Peloton also lowered it fiscal full-year 2022 revenue guidance to come in between $3.7 billion to $3.8 billion, down from $4.40 billion to $4.80 billion) versus $4.22 billion consensus analyst estimates. It expects to have 3 million connected fitness subs. Adjusted EBITDA is expected in the range of ($675 million) to ($625 million). Full year gross margin is expected around 28%, down from 32% previous forecast.

CEO Comments

Peloton co-founder and CEO John Foley announced new leadership changes after the abysmal quarter. He introduced Barry McCarthy as the new CEO while he will be taking on the role as Executive Chair of the Board. He detailed the new CEO’s credentials, “Barry most recently led Spotify's global advertising business and also served as CFO overseeing their direct listing and helping to establish Spotify as the global brand it is today. Many of you may also know that Barry served as Netflix CFO for over 10 years. Plus Barry is a longtime passionate Peloton member who shares our team's enthusiasm for our company's vision of improving lives through home fitness. I'll be partnering closely with him as we address the challenges facing our business and work to deliver on the value inherent in Peloton.” CEO Foley also detailed new initiatives starting with restructuring that should yield at least $800 million of annual cost savings. The Company expects to exit fiscal year 2022 with $1.2 billion in cash and $500 million in revolver. The restructuring will result in the reduction of headcounts across all business to corporate functions and manufacturing. The Company will wind down development on Peloton Output Park as Tonic and third party manufacturers are expected to support the next five years of growth. The Company will continue to invest in its instructors and content creators as well as platforms, software and content experiences.

PTON Opportunistic Exit Levels

Using the rifle charts on the weekly and daily time frames provides a near-term precision view of the price action playing field for PTON shares. The weekly rifle chart initially bottomed at the 22.90 Fibonacci (fib) level before coiling to form a weekly market structure low (MSL) buy trigger on a breakout above $40.35. The daily market structure high (MSH) sell triggered on a breakdown below $36.41. The weekly downtrend is stalling as the 5-period moving average (MA) flattens at $28.55 while the 15-period MA continues falling at $35.27. The weekly stochastic is attempting to cross up again as it heads towards the 20-band. The daily rifle chart downtrend is starting to stall as the 5-period MA tries to flatten at $28.33 with the 50-period MA at $32.34 and 15-period MA at $31.53. The daily stochastic rejected the 80-band causing it to fall back to the 30-band. The daily MSL triggers on a breakout through $28.45. If a daily MSL triggers, then a channel tightening back to the daily 15-period MA and 50-period MA is possible with the best case move towards the daily upper Bollinger Bands (BBs) at $41.19. Prudent investors can watch for opportunistic exit levels into strength from the $27.39 fib up towards the $45.44 fib level. Stop-losses can be considered if shares breakdown under the $23.49 fib.