Peloton's stock is down 97% from its high. This analyst sees even more downside.

By Emily Bary

BofA moves to a bearish stance on Peloton shares

Peloton Interactive Inc. shares are down 97% from their pandemic-era closing high. A BofA Securities analyst thinks they could fall even further from here.

BofA's Curtis Nagle cut his rating on Peloton shares (PTON) to underperform from neutral Thursday, writing that the current stock price fails to appropriately reflect the potential for the company to see sizable churn, an industry term that tracks the portion of customers who leave a given service.

Nagle said he sees "risk of increased churn from declining subscriber engagement and subscriber base that is increasingly at risk as COVID cohorts reach the average subscriber lifetime."

The prospects of growing churn and "tepid" subscriber additions jeopardize Peloton's goals of reaching positive adjusted earnings before interest, taxes, depreciation and amortization and cash flow, according to Nagle. Those targets "are not achievable without revenue growth or another substantial round of expense cuts."

He lowered his price objective to $4.15 from $6.50 on shares of Peloton, which are down more than 2% in Thursday morning trading. The stock is off 41% so far this year.

Nagle said that "cracks are forming in Peloton's ability to grow subscribers," and his analysis of class data for top cycling instructors indicated a significant decline in the number of classes taken per subscriber.

"While this is an obvious point, particularly post-COVID when people are working and exercising at home to a much smaller degree, trends have yet to stabilize and continue to decline on a [year-over-year] basis," he said.

One risk to his bearish case is that the stock has been known to take big swings. "As an example, when Peloton announced a [five-year] apparel/content partnership with Lululemon in late September, shares increased 5% and as high as 12% in intra-day trading (vs. 0.8% for Nasdaq) despite no detail on economics or revenue," he wrote. "In our view, the biggest potential drivers of upside include improving subscriber churn, strong holiday performance and traction with growth initiatives."

Read: Peloton and Lululemon are collaborating. One analyst calls it a 'non-event'

See also: After fighting over connected fitness, Peloton and Lululemon join forces

-Emily Bary

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10-19-23 1015ET

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