The Peloton (PTON) stock price surged by over 20% on Monday as investors reacted to takeover rumors for the struggling company. The shares also jumped ahead of the company’s quarterly results that are scheduled for Tuesday this week. It is trading at $29.75, bringing its total market capitalization to about $9.75 billion.
Rise and fall of Peloton
Peloton is a well-known company that has disrupted the fitness industry. The company sells treadmills and exercise bikes mostly to affluent customers. It then makes most of its money from its subscription business. Its customers pay a monthly fee to access a wide variety of content on fitness.
Peloton went public at the best time for the company in its industry. It was listed at the Nasdaq in 2019. A few months later, the World Health Organization (WHO) announced that Covid was a global pandemic. As a result, many countries announced lockdowns to curb the spread of the illness.
As a result, demand for Peloton’s products jumped to a record high pushing its total revenue in 2020 to over $4 billion. A year earlier, the company’s revenue was less than $2 billion.
Its stock price then took off. The Peloton stock price went public trading at around $20. In early 2021, the stock was trading at $171, making it one of the biggest companies in the United States.
There are several reasons why Peloton has struggled. First, the company has had some challenging inventory challenges. When Covid started, demand for its products jumped to an all-time high. But the company was not prepared for this surge.
To deal with this demand, Peloton went forward and increased its production. Now, Peloton is stuck with a big inventory and low demand for its products.
Second, the company is dealing with substantial competition from companies like Mirror, traditional gyms, and even Apple. Finally, PTON also had a challenge of rising costs and the supply chain management challenge.
Peloton acquisition rumors and earnings
The Peloton stock price rose after the Wall Street Journal reported that some companies were considering making a bid for the company. Precisely, the paper noted that executives at Amazon and Nike were making assessments about the firm. It is still unclear whether these companies will go forward with announcing a bid.
Also, it is not yet certain whether Peloton will be prepared to sell the firm, considering that its valuation has crashed by over $40 billion in the past few months.
The next key catalyst for the Peloton stock price will be the company’s earnings scheduled for Tuesday. Analysts have low expectations considering that the management warned about the fourth quarter in January.
According to SeekingAlpha, the company’s revenue expectation is $1.15 billion, which will be higher than the previous quarter’s $805 million. The firm is also expected to remain in the loss-making territory.
Therefore, amidst all this, the main catalyst for the stock will be the acquisition rumors. If they falter, the stock will likely decline sharply.
Peloton stock price forecast
The daily chart shows that the PTON stock price has been in a deep downward trend in the past few months. It has fallen by about 82% from its highest point in 2021 and is substantially below the 25-day and 50-day exponential moving averages. It even formed a death cross pattern in September last year.
Therefore, there is a likelihood that the Peloton stock price will decline sharply after its earnings. If this happens, it will likely retest its YTD low of $22.
