Stock Analysis

Peloton Interactive, Inc. (NASDAQ:PTON) is Struggling to Become Profitable, and has Already Taken on Debt

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Peloton Interactive, Inc.'s (NASDAQ:PTON) future prospects are made more uncertain both by the adjustment to the pandemic and by the recall of their tread+ treadmill product. Peloton provides interactive fitness products in North America and internationally. On 30 June 2021, the US$32b market-cap company posted a loss of US$189m for its most recent financial year.

In the fiscal year 2021, Peloton had total revenues of US$4b and is split into two sections: the connected fitness products made US$3.15b while the subscription revenue was at US$872m. This means that the product to software revenue portion is 78% to 22%, respectively. 

Knowing what to expect in regard to future profitability of the company, can give investors a great perspective into the shifts in risk on their investment, and the sooner Peloton becomes profitable, the more assurance investors will get on the viability of Peloton's business model.

Below, we will provide a high-level summary of the industry analysts' expectations on the timeframe to profitability for the company.

Check out our latest analysis for Peloton Interactive

Peloton Interactive is bordering on breakeven, according to the 27 American Leisure analysts. They expect the company to post a final loss in 2023, before turning a profit of US$70m in 2024.

The company is therefore projected to breakeven around 3 years from now.

In order to meet this breakeven date, we calculated the rate at which the company must grow year-on-year. It turns out an average annual growth rate of 49% is expected, which is rather optimistic!

If this rate turns out to be too aggressive, the company may become profitable much later than analysts predict.

NasdaqGS:PTON Earnings Per Share Growth September 10th 2021

Peloton also has long term debt, which is a questionable move for an unprofitable company, but it does have cash that offsets that debt. The long term debt stands at US$829m and the cash balance is US$1.6b, yielding a net cash balance of US$771m. Unfortunately, this also means that Peloton Interactive has a relatively high level of debt. Generally, the rule of thumb is debt shouldn't exceed 40% of your equity, which in Peloton Interactive's case is 47%. Note that a higher debt obligation increases the risk around investing in the loss-making company.

Conclusion & Next Steps:

Peloton is on track to become profitable in the beginning of 2024. They have long term debt, which is an added risk for money loosing companies with volatile equity.

The company's catalysts in 2020, can turn out to be additional risk factors in 2021, and investors might want to weigh the loss of momentum for the stock and possibly their products.

There are key fundamentals of Peloton Interactive which are not covered in this article, but we must stress again that this is merely a basic overview. For a more comprehensive look at Peloton Interactive, take a look at Peloton Interactive's company page on Simply Wall St. We've also compiled a list of key aspects you should look at:

  1. Valuation: What is Peloton Interactive worth today? Has the future growth potential already been factored into the price? The intrinsic value infographic in our free research report helps visualize whether Peloton Interactive is currently mispriced by the market.
  2. Management Team: An experienced management team on the helm increases our confidence in the business. Take a look at who sits on Peloton Interactive's board and the CEO's background.
  3. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.

Valuation is complex, but we're helping make it simple.

Find out whether Peloton Interactive is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

View the Free Analysis

Simply Wall St analyst Goran Damchevski and Simply Wall St have no position in any of the companies mentioned. This article is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

Goran Damchevski

Goran Damchevski

Goran is an Equity Analyst and Writer at Simply Wall St over 4 years of experience in financial analysis and company research. Personally, Goran has over 4 years of experience in financial analysis and company research, where he previously worked in a seed-stage startup as a capital markets research analyst and product lead and developed a financial data platform for equity investors. 

About NasdaqGS:PTON

Peloton Interactive

Peloton Interactive, Inc. operates interactive fitness platform in North America and internationally.

Slightly overvalued with concerning outlook.