Shares of Peloton (NASDAQ:PTON) dipped more than 2% ahead of the market open on Friday after JPMorgan analysts downgraded the stock to Neutral from Buy.
The downward revision comes amid a “challenging” growth outlook and "limited visibility," the Wall Street giant said in a note.
Peloton has achieved positive adjusted EBITDA and free cash flow for the second consecutive quarter, with expectations of more than $200 million in annualized cost savings in fiscal year 2025 (FY25), driven by its restructuring efforts and more efficient media spending.
The improved bottom-line results come despite ongoing headwinds in the connected fitness industry, which is experiencing year-over-year declines, though these have been easing.
The revenue outlook for FY25 is softer than anticipated, JPMorgan notes, reflecting expected year-over-year declines in hardware sales, macro concerns, reduced marketing costs, and higher year-over-year churn in connected fitness subscriptions.
Analysts said they were encouraged about Peloton’s recent debt refinancing and ongoing cost rationalization, noting that the company still holds a strong brand with a valuable subscriber base, marked by less than 2% monthly churn.
However, following the recent 35% surge in PTON’s share price, coupled with a challenging growth outlook for connected fitness subscriptions and revenue and limited visibility, analysts decided to cut their rating on the stock.
“Additionally, we believe it could take time for a new CEO to lay out PTON’s path forward,” they added.
JPMorgan also revised its forecasts for PTON, reducing the FY25 total revenue projection by 13%. Moreover, it lowered their free cash flow estimate, though they significantly increased their FY25 adjusted EBITDA forecast, albeit from a small base.
Analysts set a new December 2025 price target of $5, compared to the December 2024 target of $7.