Where will Peloton stock be in 1 year?

Peloton Interactivehis (PTON 2.21%) the stock had a great month with the stock gaining about 33%. Most of that came after the company announced fiscal fourth-quarter 2024 earnings. The problem is that the earnings announcement that sparked a roughly 40% jump in the company’s stock wasn’t really good, just less bad. The peloton has a lot to prove in the coming year.

Peloton is a broken fashion stock

To fully understand Peloton, you have to go back to the height of the coronavirus pandemic, when consumers were practicing social distancing, businesses were closing and employees were working from home. At the time, Peloton’s connected workout gear was all the rage because it allowed users to basically simulate being in a gym. The company couldn’t keep up with demand and struggled to support itself by opening brick-and-mortar stores and ramping up production.

Image source: Getty Images.

Eventually, though, the world managed to learn to live with COVID. Businesses reopened and people began to return to the gym. Demand for Peloton’s gear has fallen, leaving it with high costs and red ink. A new CEO came in and changed the business model by launching a fitness subscription service. The move made sense given the company’s subscription-based model around exercise equipment. However, that venture just didn’t catch on as hoped, and the CEO who led the effort is now gone.

Along the way, Peloton stock has gone from fad to forgotten. Even after the huge gain since its 2024 Q4 earnings release, the stock is still down more than 95% from its 2021 highs. Peloton is a rally stock right now.

PTON data by YCharts.

Why did Peloton stock take off?

A turnaround stock moving much higher on earnings might sound like a story you’d be interested in. Don’t get too excited about Peloton. Q4 2024 earnings were just less bad, not good. Yes, revenues were up year-on-year in the period ended June 30, but only by 0.2%. This could easily be attributed to chance. Earnings, meanwhile, posted a loss of $0.08 per share. Sure, that was a lot better than the $0.68 loss per share posted a year earlier, but the company continues to bleed red ink.

The big malaise is likely because the company generated positive adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) and positive adjusted free cash flow. That suggests the company has stabilized its business enough to screw up. However, these results came after an effort to reduce material costs. A company cannot cut its way to long-term profitability; at some point, they have to spend for growth. Just barely surviving isn’t going to make Peloton, or any other company, a good investment.

This is where the subscription numbers come in. The company’s core connected fitness equipment saw a 1% decline in subscriptions year-over-year in the quarter. The new fitness app subscription business saw a 26% drop in subscribers. This is not a business that hits on all cylinders.

The bigger issue, however, is that Peloton has yet to replace its CEO. The interim co-CEOs appear to be doing a reasonable job of stemming the bleeding, but the company’s long-term direction remains up in the air. The company’s only comment on the CEO issue was, basically, we’re working on it. Until the new CEO is in place, there’s really no way to know what the future holds for Peloton as it’s just trying to hit the ground running.

Next year will be telling for Peloton

It’s not easy to find a CEO willing to accept a change situation as dire as the one facing Peloton. It’s even harder to find someone with the necessary experience to take over the job. But that has to happen sometime in the next year. And then the hard work will begin as the new CEO learns the company from the inside out and sets a new path forward.

The less bad fourth-quarter results were nice to see, but Peloton is only suitable for aggressive investors looking to ride out the continued volatility of the stock and, more worryingly, the company’s business model. A year from now the business model issue should be clearer, perhaps.