Peloton stock hits new lows despite deal with Dick’s Sporting Goods

Peloton (PTON) announced a new partnership with Dick's Sporting Goods (DKS) on Thursday, hoping to accelerate subscriber growth as the stock hits all-time lows.

The deal, which marks Peloton's first brick-and-mortar expansion, will bring Peloton's connected fitness devices to more storefronts just one month after the company announced its first wholesale deal with Amazon (AMZN).

Though the brands provided no official date for the launch, Dick's is expected to start selling Peloton equipment in 100 U.S. retail locations and online sometime early in the holiday season.

"DICK'S is a consumer-beloved brand with a large, incremental customer base, offering tremendous upside for us to reach broader audiences and attract potential new Members," Jen Parker, senior vice president of global direct sales at Peloton, said in a press release. "Retail remains a critical touchpoint, and we want to provide the in-store experience that many current and prospective Members still covet."

Peloton shares are down more than 32% in the last month.

Peloton took direct-to-consumer 'as far as it can go'

As Peloton searches for growth in new sales channels, Wall Street analysts are divided on whether this latest play will be enough to turn around slowing sales.

Bernie McTernan, managing director at Needham & Company, remained optimistic that the battered stock could see more upside potential. McTernan maintained a Buy rating on the stock with a $14 price target.

"It is part of their strategy to get into more third-party distribution," McTernan told Yahoo Finance Live (video above). "That's what the company is trying to do, where they've taken their [direct-to-consumer] strategy as far as it can go, at least, at this point, especially where end-markets are."

New Constructs CEO David Trainer, who has a $0 price target on the stock, was more skeptical. Trainer noted that the profitability (or lack thereof) of the product outweighed any benefit from distributional channels.

"You've got to start with the unit economics," Trainer told Yahoo Finance. "First they have to produce a product that actually generates a profit, and they’re not doing that. Whether or not they sell that over their website, Amazon’s website, or in Dick's Sporting Goods stores, sort of doesn’t matter how much you sell a product that doesn’t actually generate a profit."

In its high-growth phase after going public in 2019, Peloton's gross margins topped 40% for eight consecutive quarters. But as pandemic-era growth waned and gyms reopened, the company saw its profitability slip away.

McTernen said he expects the company to reach profitability on an EBITDA basis in fiscal year 2024 but anticipates the business may only return to gross margins of 20%.

Trainer took a more bearish view on Peloton's profitability: "It's priced as if it's going to continually grow and achieve much better margins than it's ever achieved. We don't see a path to that at this point in time."

"As far as I know, their treadmill isn’t a magical treadmill that’s that different from other treadmills," Trainer added. "Their stationary bike is not that different from other stationary bikes. Their content is not that much better than other sources of content for workouts."

Peloton faces competition from services like Apple Fitness+ and free content from fitness influencers flooding social media feeds across Instagram and TikTok.

According to McTernan, Peloton stands out from these rivals in its ability to put out dozens of pieces of content per week.

“It’s really that breadth and depth of content that we think is a big differentiator for Peloton," the analyst said. "That’s why we’re focused on that subscription revenue that’s over a billion [dollars] now, heading towards two billion over time, and it’s 70% gross margin.”

While a strong slate of content could help bring in subscription revenue, impressing streaming fitness subscribers could also be a challenge for the company as it looks to cut costs.

“Content is not cheap," Trainer said. "Good, original content is expensive, so that’s not going to save the business."

Brad Smith is an anchor at Yahoo Finance. Follow him on Twitter @thebradsmith.

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