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The Q4 13F filings showed that David Einhorn’s Greenlight Capital increased its stake in fitness equipment maker Peloton (NYSE: PTON). Einhorn first bought a stake in the beleaguered company in the second quarter of 2024 and his firm is now among the biggest shareholders of the company.
Last year, Einhorn termed Peloton shares as significantly undervalued, and at the Robin Hood Investors Conference in October, he said the stock could rise as high as $31.5. “Peloton has started to right-size and cash burn has stopped. It refinanced its debt to push out maturities. And with a loyal customer base that pays $44 per month, it’s a valuable subscription business,” said Einhorn.
PTON’s Subscription Revenues Have Grown
Notably, while Peloton’s equipment sales have been soft, the company’s subscription revenues have been quite strong. At the end of its fiscal Q2 2025, Peloton had 2.87 million connected fitness subscribers which was 4% lower YoY while it ended the quarter with 0.58 million paid App subscribers.
During the quarter, the company earned $420.6 million from subscriptions compared to a mere $253 million from product sales. While Peloton’s revenues have been sliding, the company is currently focusing on profitability through aggressive cost cuts.
During the earnings call, Peloton CEO Peter Stern said, “I want to take a beat on unit economics and right sizing our costs, because both of these are foundational for us to address before we can return to growth.” He added, “We’re setting the stage to be able to grow while ensuring … we’ll have the financial capacity that we need to make investments that have strong returns.”
Peloton Stock Has Whipsawed
Peloton’s fortunes have whipsawed since the onset of the COVID-19 pandemic. Its fitness equipment was the savior for many during the lockdowns and the company’s revenues more than doubled in the fiscal year 2020 and 2021.
The stock rose 440% in 2020 as stay-at-home stocks rallied and it was among the beneficiaries of the change in consumer behavior. Many health enthusiasts bought Peloton’s equipment during the lockdowns as gyms were closed.
However, the tide started to turn for the home fitness company once the lockdowns were lifted. Peloton’s revenues fell YoY in the subsequent three fiscal years including double-digit declines in the fiscal years 2022 and 2023.
In 2021, PTON stock fell 76% and was the worst-performing Nasdaq stock. While the entire stay-at-home pack saw selling pressure, PTON was especially under pressure. The stock plummeted in 2022 and 2023 as well as fell to record lows, briefly becoming a penny stock.
Amid its sagging fortunes, Peloton appointed former Netflix executive Barry McCarthy as its CEO who embarked on a turnaround plan to revive the fitness equipment maker. However, the stock continued to decline to new lows under his watch and eventually, he stepped down as the CEO in May 2024.
Peloton Is Focusing on Profitability
In October, Peloton appointed Ford executive Peter Stern as its CEO and the stock has rallied sharply. Stern was heading Ford’s subscription business and has been focusing on PTON’s subscription services which is a high-margin business generating gross margins of almost 68% in the most recent quarter.
Meanwhile, despite the relentless cost cuts, PTON CFO Liz Coddington acknowledged the company still has a long way to go.
During the earnings call, she said, “While we’re pleased with this progress that we’ve made, we do see further opportunities for cost optimizations, and we’ve built a culture of cost discipline into our company. We know that our [operating expenses] as a percent of revenue is still too high overall for the long term, and especially that’s true within our [general and administrative] area.” Coddington however stressed that she sees “multiple opportunities” to cut costs even further.
Pelton Has Been Working on Partnerships
Notably, while Peloton sold equipment through its own channels previously it changed track amid sagging sales and mounting costs of maintaining a large retail footprint.
In 2022, it announced a partnership with Amazon to sell its fitness equipment on its platform. Later, it also partnered with Dick’s Sporting Goods and Lululemon to see its hardware through their stores.
The company also announced a multiyear partnership with the NBA and WNBA and entered into a content deal with TikTok last year. In 2024 only, it started selling its equipment in Costco stores.
Analysts Turn Bullish on Peloton Shares
Meanwhile, over the last six months, several analysts have turned bullish on Peloton stock. After Stern was appointed as Peloton’s CEO, Bank of America upgraded the stock by two notches to “outperform.” The brokerage said in its note, “Peloton’s new CEO Peter Stern does not have public company CEO experience but meets all the criteria set by Peloton’s board including: 1) consumer software and hardware experience; 2) subscription services.”
In December, UBS also upgraded PTON from a “sell” to “neutral” while raising the target price four-fold to $10. In their note, UBS analysts wrote, “It sounds as if opex could have room for further optimization, and we note that the full $200 million plus of run-rate cost saves this year will annualize in fiscal 2026.”
The brokerage is however circumspect about Peloton’s growth prospects and in its note it said, “While we see subscription price increase as a relatively easy way to drive near-term 2% to 3% top-line growth, stock rerating could be held back by more challenging subscriber net additions, driving further opex reductions.”
Argus Upgrades PTON to a Buy
Last week, Argus analyst John Staszak upgraded Peloton stock to a “buy” joining the list of analysts turning bullish on the fitness equipment company. In its note, Argus raised PTON’s target price to $15 and wrote, “Given his background in the health & fitness industry, we think that Peloton’s new CEO, Peter Stern can reduce debt, revive subscriber growth, and increase customer retention,” Argus analysts noted.
Notably, during the fiscal Q2 earnings call, Peloton raised the full-year adjusted EBITDA guidance to between $300 million-$350 million. The company also raised its free cash flow forecast and now expects the metric to be above $200 million as compared to the previous guidance of $125 million.
