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Peloton shares rise as treadmill recall impact not as bad as feared

A Peloton Interactive Inc. Tread exercise machine for sale at the company’s showroom in Dedham, Massachusetts, U.S., on Wednesday, Feb. 3, 2021.

Adam Glanzman | Bloomberg | Getty Images

Peloton shares climbed about 6% Friday as investors realized the financial hit from the company’s treadmill recall isn’t as bad as some had feared.

The exercise equipment maker said demand for its high-end cycles remains strong, despite people increasingly breaking free of stay-at-home routines and gyms seeing pandemic restrictions ease.

Peloton is also still planning to launch in Australia later this year, and is ramping up marketing spending to try to reach new customers.

“While the recall will hit financials in the short term, and push back Tread financials a quarter or two, we think this was the prudent decision in the long term,” Barclays analyst Mario Lu said in a note to clients. “We continue to view Peloton as the leading company in connected digital fitness.”

When Peloton reported its fiscal third-quarter results on Thursday, it said fourth-quarter sales will be $165 million lower due to the recall. That puts fourth-quarter revenue at about $915 million, short of analysts’ estimates for $1.12 billion, according to Refinitiv data.

The projected $165 million impact consists of a roughly $105 million dent from a lack of treadmills sales during the period, since all sales are halted, Peloton said. The company is also assuming about 10% of current treadmill owners will ask for a refund for their machines, which cost $4,300 apiece, and that would lower sales by an additional $50 million.

Telsey Advisory Group analyst Dana Telsey had expected the recall to have a larger impact. She maintained her outperform rating on stock, but lowered her price target to $120 from $150, due to “uncertainty around the ultimate financial impact of the recalls and on Peloton’s brand name.”

She noted, though, that demand for Peloton’s Bike and Bike+ machines is still solid. And the more expensive fix will be for Peloton’s Tread+ machine, rather than the less expensive Tread version, which represents a much smaller revenue stream overall, Telsey said.

Peloton shares closed Thursday at $83.78. The stock is down about 45% year to date, bringing the company’s market cap to about $24 billion. Shares had tumbled nearly 15% on Wednesday, the day the company announced its voluntary recall, wiping $4.1 billion from Peloton’s market value.

On a call, Chief Executive John Foley walked through the steps the company is taking with the U.S. Consumer Protection Safety Commission to launch the Tread in the United States later this year. It had been scheduled for May 27, but is being pushed back until Peloton and the CPSC can work on new safety protocols.

That could potentially happen as early as July, Foley said.

According to Telsey, that’s also earlier than many people were anticipating.

“Somewhat lost amidst the Tread/+ recalls discussion was a very strong third quarter,” JPMorgan analyst Doug Anmuth said. “Peloton beat across all metrics.”

–CNBC’s Michael Bloom contributed to this reporting.

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