The Ratings Game: Peloton stock backpedals amid concerns about momentum and lockup expiration

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Peloton Interactive Software Inc.’s forecast does not call for a continuation of the company’s holiday-season momentum, and that’s weighing on the stock Thursday.

Shares of the company PTON, -10.22%, which sells connected exercise equipment and virtual workout subscriptions, were down 10% in early trading Thursday after the company posted better-than-expected results for its fiscal second quarter but gave a disappointing revenue forecast for the current period.

See more: Peloton stock falls after earnings, weak third-quarter revenue guidance

“While we believe Q2 reflects strong traction for the brand and uptake of the product, bears will point to the implied slowdown in growth in Q3 and FY subscriber guidance that only flows through the Q2 beat and suggest that the Q2 beat was a pull forward of demand, rather than as an indication that the [total addressable market] may be bigger than previously expected,” wrote Bernstein’s Jamie Merriman, who rates the stock at outperform with a $39 price target.

Merriman points out that Peloton’s fiscal third quarter a year ago included early shipments of the company’s $4,295 treadmill, meaning the company faces a tough comparison for the period.

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Peloton’s most recent commentary has BMO Capital Markets analyst Simeon Siegel feeling skeptical about some of the company’s strategic moves, including a decision to lower the price of its digital-only subscription to $12.99 a month from $19.49 a month, whereas a connected fitness membership for equipment owners costs $39.99 a month.

The idea is that non-equipment owners using the cheaper digital option will be more likely to replace their existing bike or treadmill with a Peloton device down the line if they’ve been exposed to the company’s classes already, but Siegel questions whether it will have the intended effect.

“We believe the wider the delta between the [connected fitness] and digital subscription prices, the more the customer is incentivized to question the value of the higher tier, which lies in having the synched bike or tread, with no benefit for any other class,” he wrote. “After all, just our opinion, but we believe it is the Peloton content that creates the cult-like community (of which, we are a proud card-carrier), much more so than the specific hardware/equipment.”

He also flagged Peloton’s growth in average monthly workouts per connected fitness subscriber, as the metric stood at 12.6 in the latest quarter compared with 9.7 a year prior. “Taking a step back, if the goal is to gain members rather than raise price/improve productivity of existing users, does the average workout number really matter?” Siegel asked. He rates the stock at market perform with a $26 price target, down from $27 before the report.

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

MKM Partners analyst Rohit Kulkarni highlighted Peloton’s upcoming lockup expiration as a near-term overhang. “Per its latest 8-K, the lock-up period will end on Feb. 23, which is 10 trading days prior to the commencement of the company’s quarterly blackout period,” he wrote. “Approximately 317 million shares out of an estimated 331 million outstanding shares may become available for sale starting Feb 24.”

Kulkarni rates the stock at neutral with a $28 target.

The company found defenders elsewhere. “While Peloton’s FQ2 report was met with mixed response (stock initially giving back portion of 12% year-to-date outperformance versus S&P), our bull thesis remains intact given strong subscription growth and better churn, encouraging flow-through (cutting years off profitability ramp), and multiple ongoing upside levers given strong increases in brand awareness and new content/hardware opportunities,” wrote Baird analyst Jonathan Komp, who rates the stock at outperform and bumped his target up a buck to $36.

At least eight analysts hiked their price targets on Peloton’s stock after the report, while at least one analyst set a lower target. Of the 22 analysts tracked by FactSet who cover Peloton, 20 rate the stock a buy and two rate it a hold. The average price target is $32.70, 14% above recent levels.

Peloton shares were up 42% over the past three months as of Wednesday’s close, compared with an 8.4% gain for the S&P 500 SPX, +0.22%  in that span.