{"id":6148,"date":"2021-11-17T22:44:31","date_gmt":"2021-11-17T21:44:31","guid":{"rendered":"https:\/\/www.simtrade.fr\/blog_simtrade\/?p=6148"},"modified":"2021-11-17T22:44:31","modified_gmt":"2021-11-17T21:44:31","slug":"pelotons-uphill-battle-worlds-return-order","status":"publish","type":"post","link":"https:\/\/www.simtrade.fr\/blog_simtrade\/pelotons-uphill-battle-worlds-return-order\/","title":{"rendered":"Peloton\u2019s uphill battle with the world\u2019s return to order"},"content":{"rendered":"

Peloton\u2019s uphill battle with the world\u2019s return to order<\/h1>\n

\"Photo<\/a><\/p>\n

In this article, William ANTHONY<\/a> (ESSEC Business School, Global Bachelor of Business Administration, Exchange Student from the University of Bath, 2021-2022) discusses the market reaction to Peloton\u2019s quarterly results.<\/p>\n

Description of the firm<\/h2>\n

Peloton is an American company which produces exercise equipment and media streaming. Its best-seller \u2018Gen 3 Peloton bike\u2019 is available in the US, UK, Germany, Australia, and parts of Canada. With significant increases in sales during the COVID pandemic, Peloton became a public company via IPO on September 26th, 2019. At the time of writing, the company is currently valued at $16.85Bn (Market Capitalization as of 07\/11\/2021).<\/p>\n

\"Peloton<\/center>
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Source: Peloton.<\/center><\/p>\n

Description of the event<\/h2>\n

Peloton reported weakening sales on the 4th<\/sup> of November 2021 and a larger loss than expected for its first fiscal quarter. As consumers begin to return to gyms, a step closer to a pre-pandemic environment, John Foley, Peloton CEO, admits to ongoing \u201csupply chain constraints\u201d and \u201cdemand uncertainty amidst re-opening economies\u201d. The fall in demand growth for Peloton\u2019s exercise equipment has subsequently lowered the demand for its subscription-based products which has also contributed to lower profit margins.<\/p>\n

My explanation of the market reaction to the event<\/h2>\n

The weaker than expected sales growth report led to a decrease in Peloton\u2019s share price by nearly 40% from $86 to $60 as illustrated in Figure 1 below. In their fiscal first quarter, Peloton\u2019s loss per share was expected at $1.07 but was instead $1.25; revenue was expected at $810.7 million but was instead $805.2 million. Despite a surge of 148% in sales and marketing expenses to $284.3 million, which represents around 35% of Peloton\u2019s revenue, the firm was still unable to show strong growth figures coming out of the Covid-19 pandemic. This is extremely worrying and underlines Peloton\u2019s \u201cchallenged visibility\u201d (John Foley, 2021).<\/p>\n

CNBC\u2019s Jim Cramer advised his audience to sell Peloton on the next bounce after what he called a \u201cdisastrous\u201d quarterly result. When looking at gyms like Planet Fitness Inc which have increased by nearly 20% in the last 5 days in share price, I believe there is reason for worry for Peloton shareholders. The lack of direction from Peloton management regarding a post-pandemic market and ongoing supply chain challenges leaves Peloton with a \u2018sell\u2019 market consensus and for me justifies its cliff-diving share price.<\/p>\n

Figure 1. Peloton stock chart.<\/center>
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\"Peloton<\/center>
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Source: Google Finance.<\/center><\/p>\n

Justification of my choice of the event and the firm<\/h2>\n

I chose this event because it is very recent, it is also a great example of how news regarding stagnant growth can negatively affect a company\u2019s share price. In this example, one of the top fitness companies in the world that gained massive momentum over the global COVID pandemic, saw all its shareholders lose up to 40% of their investment in one single after-hours trading session. Here we have witnessed how ruthless the market can be in just a couple of hours.<\/p>\n

My thoughts on the market efficiency<\/h2>\n

Eugene Fama distinguishes three levels of informational market efficiency:<\/p>\n