2 Former Pandemic Darlings Eyeing a Big 2025 Turnaround

Key Points

• The pandemic-era stock surge drove Peloton and Teladoc to triple-digit highs, but they have since crashed to single-digit lows in 2024.
• Peloton has focused on its subscription model and cost-cutting to report a breakeven quarter in fiscal Q4 2024, with profitability expected in 2025.
• Teladoc is turning things around as revenue declines slowly, driven by international growth, prompting Goldman Sachs to initiate the stock with a Buy rating.

The pandemic triggered a boom in stocks that accommodated physical isolation, convenient access from home, and fitness. Many of these stocks hit unbelievable highs during the lockdowns but collapsed just as hard in the post-pandemic normalization period afterward. While many of these stocks faded into oblivion, leaving a trail of bagholders, some stocks are attempting to regain some footing as they learn from past missteps. Here are two former high-flying momentum stocks in the consumer discretionary and medical sectors that crashed but are trying to mount a comeback in 2025.

Peloton: Riding High and Crashing Low 

During the COVID-19 pandemic lockdowns, gym closures caused consumers to bring the gym home. Peloton Interactive Inc. NASDAQ: PTON thrived on this perfect storm as their $2,500 bikes and $4,000 treadmills were flying off the shelves, and its subscription business saw record subscribers breaking the three million member threshold in 2021, up over 200% YoY. Its interactive, on-demand, and live fitness classes were accessible through the screens mounted onto their bikes. Peloton reported fiscal 2021 annual revenue of $4.02 billion, up 172% YoY. The stock surged to an all-time high of $171.09 in January 2021.

Then came the normalization period as COVID restrictions eased by the end of 2021 and the start of 2022. The company continued to lose massive amounts of money after hitting a $47 million profit in Q2 2021. Manufacturing issues and supply chain disruptions led to long shipping delays and backlogs, which strained customer demand. As people returned to gyms, demand collapsed. Peloton shares fell to a low of $2.70 in May of 2024.

Replacing the Founder With a New CEO

Peloton eventually replaced its CEO with Barry McCarthy, formerly of Netflix Inc. NASDAQ: NFLX and Spotify Technology S.A. NYSE: SPOT, as its founder, John Foley, stepped down. McCarthy focused more on digital app-only memberships, shifting focus away from hardware and toward fitness content, prioritizing the subscription revenue model. McCarthy stepped down as CEO in May 2024, as the company also announced a 15% reduction in its workforce.

Peloton Finally Reports a Breakeven Quarter

On Oct. 31, 2024, Peloton reported a net EPS breakeven quarter for its fiscal first quarter of 2025, beating analyst estimates by 15 cents. GAAP net loss was just $1 million, a $158 million YoY improvement. Net cash provided by operating activities improved by 92% YoY to $12 million.

Revenue declined 1.6% YoY to $586 million, beating consensus estimates of $572.97 million. The company expects to deliver over $200 million in run-rate cost savings by the end of fiscal 2025.

Bolstering the Subscription Model and Appointing Its New CEO

The company really focused on growing its subscription business. The company had over 6 million members, 2.9 million Paid Connected Fitness subscribers, and 582,000 Paid App subscribers, resulting in $1.7 billion of annualized subscription revenue and a 67.8% subscription gross margin. Two-thirds of its subscribers are women, and the company sees an opportunity to grow its male memberships. Paid Connected Fitness Subscription Churn was 1.9% in Q1.

Peloton also announced it completed its CEO search and announced the appointment of Peter Stern as its new CEO on Jan. 1, 2025. Stern was formerly Vice President of Services at Apple Inc. NASDAQ: AAPL. Stern has been a customer of Peloton since 2016. Shareholders hope the new CEO will lead the company back to profitability in 2025 as positive sentiment has overtaken the stock trading in the $7.00-$9.00 range.

Teladoc: Telemedicine Enables Virtual Doctor House Calls Until Live Visits Resume

During the pandemic, patients had a tough time scheduling doctor visits, and outpatient surgeries were all but canceled. Emergency rooms were emptied for COVID-19 patients. This spawned a surge in virtual visits were able to make virtual doctor’s appointments thanks to the widespread adoption of telemedicine platforms. Teladoc Health Inc. NYSE: TDOC saw its shares surge from a pre-pandemic price of $67.74 in October 2019 to an all-time high of $308.00 on Feb. 16, 2021. Revenue doubled to $1.1 billion during the pandemic surge in 2020.

The $4.5 Million Better Health Business Acquisition Was a Game-Changer

The post-pandemic re-opening caused growth to slow down as patients were able to resume physical doctor visits and elective surgeries. Teladoc has continued to expand its network to over 7,000 board-certified doctors in all U.S. states and more than 125 countries. It also made a significant strategic investment of $4.5 million to purchase a little-known mental health digital platform called BetterHelp, which provides on-demand therapy with licensed therapists. BetterHelp has been wildly successful in growing its annual revenues north of $1 billion. Teladoc’s stock finally made a low of $6.84 on Aug. 12, 2024, and has since rebounded to the $9.21 level.

Teladoc Stabilizing as Revenue Decline Slows

On Oct. 30, 2024, Teladoc reported an EPS loss of 19 cents, beating consensus estimates by 9 cents. Net loss was $33 million, while adjusted EBITDA fell 6% YoY to $83.3 million. BetterHelp revenue fell 10% YoY to $256.8 million with an adjusted EBITDA margin of 5.9%.

Revenue fell 3% YoY to $640.9 million, beating consensus estimates of $631.18 million. While U.S. revenue fell 5.8% YoY to $536.18 million, international revenue grew 14.8% YoY to $104.35 million. U.S. integrated care members rose 4.1% YoY to a record 93.9 million.

Teladoc Issues Upside Guidance

In a rare turn of events, Teladoc issued upside guidance for Q4 2024, with revenue expected to grow from $646 million to $662 million versus $633.02 million consensus estimates. 

Teladoc's new CEO, Charles Divita III, started in June of 2024, coming over from GuideWell, the parent company of Florida Blue and Florida Blue Cross Blue Shield plan. Divita was in charge of $23 billion in revenue coming from over 38.5 million members across 50 states. CEO Divita commented, "As we close out 2024, we are moving with urgency and making changes to more effectively leverage our leadership position in the complex and dynamic markets we serve. There is more work ahead of us, and 2025 will be an important repositioning year. Our focus remains on delivering consistent performance and driving long-term shareholder value.”

Goldman Sachs Likes What They See

Analyst David Roman commented that the integrated care business will drive Teladoc's membership and revenue growth and stabilize EBITDA in 2025. A better-targeted BetterHelp strategy can lead to growth in 2026. Roman initiated the cover of Teladoc's stock with a Buy rating and a $14 price target.