Citron Research, the Beverly Hills-based firm run by the short-seller Andrew Left, sent a note to clients on Tuesday calling for Peloton shares to fall to $5 apiece in 2020 – more than 85 percent below where they settled Monday. The stock slid 5.7 percent to $32.78 a share on Tuesday.
“Unless $PTON makes a machine that works out for you, we will be laughing at $10 billion valuation in a year,” Citron tweeted on Tuesday, adding that the company's market value is “unrealistic” and “disconnected from all reality.”
Shares had rallied 62 percent from Peloton’s first-quarter earnings release on Nov. 5 through last Monday after the report showed the company’s quarterly loss narrowed to $49.8 million, a $4.8 million improvement from the prior year. Peloton didn't immediately respond to a message from FOX Business seeking comment.
The firm has “enjoyed a first-mover advantage,” but is now facing competition from companies making similar bikes that are “both more affordable and functional,” according to Citron.
The firm isn't the only skeptic. “The stock is completely overpriced right now. It’s almost trading as if it’s a software or subscription-based company,” Mark Tepper, president and CEO at Strategic Wealth Partners, told FOX Business’ Stuart Varney.
Peloton has plenty of loyalists, however. Of the 20 analysts surveyed by Refinitiv on Dec. 6, seven rated the company a “strong buy,” 12 said it was a “moderate buy,” and only one had a "hold" rating. Their average 12-month price target was $32.84 a share.
JMP Securities analyst Ronald Josey reiterated his “market outperform” rating on Peloton on Wednesday and raised his price target to $38 from $34 due to “greater confidence on subscription revenue and newer product launches along with growing user engagement.”
Still, Citron says it’s “hard to justify paying $2,300 for a smart bike” amid increasing competition from other workout products such as Mirror and Tonal and options including boxing and rowing.
The firm says Peloton’s “glory days of hardware sales” are over as competitors are giving free exercise bikes in an attempt to steal market share.
One of the problems with Peloton’s business model, according to Citron, is that digital subscribers can pay $12.99 a month without buying a bike instead of the $39 a month users pay for a connected experience. It would be comparable to Netflix giving DirecTV users a $3-a-month subscription in hopes that they would eventually become a subscriber of the streaming service, Citron argues.
The firm also cites issues including CEO John Foley’s “loose lips,” a reference to several claims that the company is profitable (it lost $195.6 million in 2019) and a management “eager to cash out.”
The exercise-equipment maker took a pummeling earlier this month after a holiday ad that chronicled a woman's workouts on a bike given to her by her husband was labeled sexist by critics.
“To put Peloton’s ridiculous valuation into perspective, we compared the company’s valuation on a per-user basis versus other leading fitness, streaming, and popular apps,” Citron concludes. “The takeaway is clear. Peloton at $10BN or even $5BN makes zero sense.”