Peloton Stock’s exhausting slide continues.

It’s amazing to think about what has changed since the COVID-19 pandemic began four years ago. During the lockdown, Peloton Interactive (NASDAQ:PTON) was suddenly in the headlines and a favorite of speculative stock traders.

Today, pandemic lockdowns in the United States have largely been lifted, and the public’s desire to buy expensive home exercise bikes has waned. Meanwhile, PTON stock is well below its late-2020 high of $150.

However, let’s not confuse a sharp decline in stock prices with real value. Today’s overzealous traders may have learned their lesson the hard way. Sometimes stock prices fall not because they are cheap, but because they should never have gone up in the first place.

Tragedy and the “critical cliff”

Interest rates were low in 2020 and 2021, and people were willing to spend their pandemic-era stimulus money on exercise equipment they didn’t need and stocks with moonshot potential. However, 2022 was a year of reckoning, with interest rates soaring and high-flying stocks plummeting.

PTON stock is indeed a textbook example of the breakdown of painful monetary easing policies in 2022 and the speculative fever in financial markets. To some extent, these macroeconomic changes explain the sharp decline in stock prices.

But Peloton Interactive also had its own challenges. Unfortunately, an accident involving a Peloton product left one child seriously injured and another dead. The company has launched a recall for one of its most popular treadmill models after more than 70 incidents were reported.

It’s easy to say this in retrospect, but the red flags for the peloton were too big to ignore. Analysts at BMO Capital Markets warned at the time that the company was teetering on the “edge of a material cliff” and would require “a real strategic reset to stem meaningful cash burn and volatile demand.”

By September 2022, Peloton Interactive’s two co-founders and chief commercial officer had stepped down from their positions. A few months later, the company announced a program to sell used exercise bikes. These bikes were still quite expensive (over $1,000 each), and in any case, PTON stock continued to lose value rapidly.

Was the departure of top executives a sign of deeper, ongoing problems at Peloton? With the company reporting second quarter fiscal 2024 results and Peloton stock nearing all-time lows, leaving seemed like the right move.

failure to grow

“We continue to look at ways to drive growth across multiple vectors,” Peloton Interactive CEO Barry McCarthy declared in a letter to shareholders. “Some of these new initiatives have delivered strong results,” he said. Some didn’t.”

The statement “some don’t” might be the understatement of the year. Two years of declining revenue highlights Peloton’s failure to generate public enthusiasm for its pricey home exercise equipment in a post-pandemic world.

Looking at the numbers, Peloton Interactive generated $743.6 million in revenue in the second quarter of fiscal 2024, a notable decrease from $793 million in the year-ago quarter. This despite Peloton’s executives claiming that the company “delivered very strong sales growth through these channels this holiday season, with unit growth reaching 74% year-over-year in the second quarter.”

The outlook isn’t particularly bright, as Peloton Interactive expects to generate between $700 million and $725 million in revenue this quarter. Again, this means less sales. Peloton reported sales of $749 million in the same period last year. Moreover, Wall Street consensus estimates were calling for revenue of $749 million for the quarter.

Peloton blamed “uncertainty surrounding our ability to efficiently grow subscribers to our paid apps and the performance of other new initiatives,” and also pointed to “an uncertain macroeconomic outlook.”

McCarthy also warned, “We now expect the business to generate positive free cash flow in the fourth quarter, but will fall short of our full-year target.”

exercise in vain

This is certainly not what the market wanted to hear from Peloton executives. PTON shares fell nearly 23% in midday trading Thursday, perhaps an expression of investors’ desperate hopes that the company will make a dramatic turnaround in 2024.

As the old stock market saying goes, hope is not a strategy. Peloton needed to get over that last quarter and be optimistic about this quarter. Clearly, strong holiday season sales weren’t enough to calm the market’s worst fears about Peloton.

So, with that in mind, I’m exercising my right to stay as far away from Peloton Interactive stock as possible.