Bulletin
Investor Alert

New York Markets Open in:

Dec. 14, 2019, 12:39 p.m. EST

Peloton shares could be headed to $5, short-seller Citron Research says

Citron has doubts about Peloton’s software strategy and competitive differentiation

new
Watchlist Relevance
LEARN MORE

Want to see how this story relates to your watchlist?

Just add items to create a watchlist now:

  • X
    Peloton Interactive Inc. (PTON)
  • X
    Facebook Inc. Cl A (FB)
  • X
    Match Group Inc. (MTCH)

or Cancel Already have a watchlist? Log In

By Emily Bary


Shawn Hubbard/Peloton
Peloton was the subject of a negative report Tuesday from a noted short seller.

Peloton Interactive Software Inc. shares were down more than 6% in Tuesday trading after short-seller Citron Research penned a negative report on the maker of exercise equipment, arguing that its stock could be headed for a slide of more than 80%.

The Citron analysts, who set a $5 price target on the stock, argue that Peloton’s /zigman2/quotes/208035743/composite PTON +0.07%  digital strategy is flawed while its hardware capabilities are both behind the competition and undeserving of a premium multiple. The report also mentions “obvious comparisons to GoPro and Fitbit” and Citron’s regret that it wasn’t “more aggressive” on its GoPro short call after issuing a bearish report on the company in 2014.

Read: Peloton says it’s ‘disappointed’ by how its viral ad was ‘misinterpreted’

When it comes to Peloton, the analysts take issue with Peloton’s $12.99 digital plan, which is available to those who don’t own the company’s exercise equipment, and its price contrast relative to the $39 connected-fitness plan for those who do pay $2,245 for one of Peloton’s spinning bikes. Though the $39 membership offers a wider variety of features including live workout metrics, the doubt that the digital plan is actually as strong of a lead generator for the premium experience as management says.

“To put it in terms of digital content… Imagine if Netflix decided to increase its subscriber base by giving away its content to DirecTV subscribers for $3 a month rather than $12.99 and justified it by claiming they hoped to build enough brand loyalty that customers would eventually become Netflix subscribers,” Citron wrote. “Would anybody buy that strategy?”

Don’t miss: ‘Peloton Girl’ rescued in new ad from actor Ryan Reynolds’s Aviation Gin

The cheaper price of the digital-only offering has allowed rivals to “quickly exploit” Peloton’s strategy and advertise that their less-expensive equipment is compatible with Peloton’s digital membership and workouts.

In terms of hardware, the analysts cite a “lack of differentiation of its bike” that is making it so “the competition is not only making virtually identical exercise bikes but ones that are both more affordable and functional.”

Citron arrives at its $5 target price by looking at Peloton’s enterprise value per user and comparing it to the average for a basket of peer companies, including Facebook Inc. /zigman2/quotes/205064656/composite FB -0.14% , Match Group Inc. /zigman2/quotes/207178501/composite MTCH -1.02% , and Roku Inc. /zigman2/quotes/205087179/composite ROKU -0.46%  The firm calculates that Peloton is 2286% higher than the average on the metric and that if it had the same value per user as the average, its stock would be valued at $5.

The Peloton husband on that hated ad: ‘That’s not who I am’

“By no means is Citron saying that Peloton’s revenue will decline by 70% or 80% but even a small decrease in growth will result in a large decrease in share price,” Citron said in its report.

Peloton’s stock went public in late September at an offering price of $29. Shares were trading near $32.50 Tuesday afternoon. The company did not immediately respond to a request for comment.

/zigman2/quotes/208035743/composite
US : U.S.: Nasdaq
$ 27.10
+0.02 +0.07%
Volume: 3.33M
Feb. 19, 2020 4:00p
P/E Ratio
N/A
Dividend Yield
N/A
Market Cap
$7.61 billion
Rev. per Employee
N/A
loading...
/zigman2/quotes/205064656/composite
US : U.S.: Nasdaq
$ 217.49
-0.31 -0.14%
Volume: 12.14M
Feb. 19, 2020 4:00p
P/E Ratio
33.79
Dividend Yield
N/A
Market Cap
$620.01 billion
Rev. per Employee
$1.57M
loading...
/zigman2/quotes/207178501/composite
US : U.S.: Nasdaq
$ 75.92
-0.78 -1.02%
Volume: 1.50M
Feb. 19, 2020 4:00p
P/E Ratio
41.96
Dividend Yield
N/A
Market Cap
$21.29 billion
Rev. per Employee
$1.15M
loading...
/zigman2/quotes/205087179/composite
US : U.S.: Nasdaq
$ 126.56
-0.59 -0.46%
Volume: 17.25M
Feb. 19, 2020 4:00p
P/E Ratio
N/A
Dividend Yield
N/A
Market Cap
$15.64 billion
Rev. per Employee
$668,322
loading...

Emily Bary is a MarketWatch reporter based in New York.

Get news alerts on Peloton Interactive Inc. — or create your own.
This Story has 0 Comments
Be the first to comment
More News In
Industries

Story Conversation

Commenting FAQs »
Link to MarketWatch's Slice.