Why Peloton Interactive Stock Is Still Falling This Week

What happened?

shares of Peloton Interactive (PTON -4.93%) are continuing their long, steady slide this week and look set to close 8.4% below last Friday’s levels, according to data S&P Global Market Intelligence.

Shares of the connected fitness equipment maker are up more than 2% as of 11:47 a.m. ET today, but that’s not nearly enough to erase the deficit from the rest of the week.

Image source: Peloton Interactive.

so what

In a bid to shake off its image as a luxury brand (although fitness equipment $1,200 and up tends to mold the image in consumers’ minds that this isn’t a necessity), Peloton has lowered prices and introduced lower-cost options.

The new $300 Guide, a fancy smart camera that connects to a TV, might not be able to erase that image either, as there are other products on the market that are cheaper and more comprehensive. Coupled with runaway inflation and declining real disposable income, even such cheaper items could still seem overpriced.

Peloton is still growing, but at a much slower pace than investors were used to, and now its affiliate fitness classes are facing more competition. Lululemon Athletica (LULU -2.15%) starts connected workouts from their Mirror device. While there are doubts about the effectiveness of launching a similar product in what’s becoming a crowded market, another competitor casts even more doubt on Peloton’s already muted prospects.

What now

Peloton isn’t expected to become profitable on an adjusted basis before 2023, but if the economy continues to slow (or worse, decline), reaching that threshold could be delayed. And it’s possible that we’re in the early stages of a recession.

Gross domestic product fell 1.4% in the first quarter, compared with an expected 1% increase, while the consumer price index continued to race higher, hitting 8.5% in March. We are gripped by inflation not seen in four decades, and Treasury Secretary Janet Yellen says we only have to live with it for a while.

St. Louis Federal Reserve Chairman James Bullard said the Fed may need to be even more aggressive with interest rates than already planned, and praised Fed Chairman Paul Volcker’s tough tactics in the 1980s when he Raised interest rates to 20%. . Bullard says it may be necessary to halt economic growth to tame inflation.

This isn’t a favorable environment for selling $1,200 exercise bikes or $2,400 treadmills, and while Peloton is down 85% of its value, we may not have bottomed out yet.

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