Arpine Kocharyan, UBS analyst, reiterated his Sell rating for Peloton (NASDAQ) and reduced the price target from $30.00 to $13.00 per shares.

Lower sales, EBITDA and Q4 profits reflect the lower price target. Kocharyan still has 3 problems with Peloton.

1. Increased CAC when PTON is required to significantly reduce marketing spending;
2. But it is still capital-intensive.
3. Is it true that everyone needs a bicycle as much as they do a smartphone?

The analyst believes that investors will be focusing on the shift towards liquidity and cash flow preservation for the short term.

“PTON is guiding to positive cash flow in FY’23, with no indication of when PTON gets to profitability. The positive cash flow for FY’23 is dependent on the subscriber base increasing in 2023. The management also believes inventory will become a source for cash in ’23, instead of being used as cash this year. PTON must have enough liquidity to continue operating the business, regardless of the macroeconomic outcomes. The $750M five-year loan was for the operation back to positive cash flow. With international revenue declining -3.5% YOY in Q3, management highlights further opportunity to drive growth internationally but that could require higher reinvestment rate and currently positive cash flow trumps growth,” Kocharyan said in a client note.

By Senad Karaahmetovic