UBS analyst Arpine Kocharyan reiterated a Sell rating on Peloton (NASDAQ:PTON) and lowered the price target to $13.00 per share from $30.00.
The lowered price target reflects lower sales and EBITDA in outer years, and lower than expected Q4 profitability. Kocharyan continues to see 3 issues with Peloton.
- Higher CAC upfront when PTON needs to reduce marketing spend significantly;
- Still a fairly capital-intensive business; and
- Does everyone need a bike as much as they need a phone?
Overall, the analyst says investors are likely to focus on a shift to liquidity and cash flow preservation in the near term.
“PTON is guiding to positive cash flow in FY'23, with no indication of when PTON gets to profitability. That positive '23 cash flow is predicated on subscriber base growing in 2023. Also management expects inventory to turn into a source of cash in '23 instead of use of cash this year. Management reiterates that regardless of macro economic outcomes PTON should have sufficient liquidity, after the $750M 5-year loan to operate the business back to positive free cash flow. With international revenue declining -3.5% YOY in Q3, management highlights further opportunity to drive growth internationally but that could require higher reinvestment rate and currently positive cash flow trumps growth,” Kocharyan said in a client note.
By Senad Karaahmetovic