Pelotons partnership with Amazon opens up a new door for the fitness brand: Analyst

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Peloton shares soaring up nearly 20 it’s a top trending ticker on yahoo finance after reaching a deal to sell its products on amazon joining us now is mkm partners managing director for internet and capital markets we have rohit kalkarni joining us rohit it’s great to see you so this deal the peloton bike the guide and select accessories and apparel are going

To be available on amazon how significant is this for peloton ah clearly the stock price is saying that it is very significant thanks for having me um but from a fundamental standpoint i think it opens up a new door into a peloton’s distribution strategy they have always sold it off their own warehouse’s own kind of stores and their own website amazon is the

Largest distributor of all e-commerce products so i think this is a very big positive step for peloton and no matter how you cut it this takes the company forward and the question of moving forward but what’s next down the road some wonder if there will be other retailers to follow want to get your thoughts on that as well as the possibility of peloton content

Being streamed on amazon prime um this this opens up a lot of possibilities in my opinion i think uh the ceo the new ceo has uh has shown uh kind of no signs of that he is willing to take risks what i’m going to say is he has shown a lot of signals that he’s willing to take risks with the model with the business model with distribution with the content and

Everything around it so he’s essentially completely redoing the apple cart uh in a way that that perton could be a big home run from here on out the way i feel about what can amazon and peloton do together i think there is no better set of consumers than prime subscribers uh amazon and peloton already work together on aws which is the cloud computing thing so

The synergies between the two companies are getting closer and closer amazon is getting deeper into healthcare and fitness and there is no better company than peloton with a better brand name so i feel uh more positive for peloton right now but there could be halo coming to amazon too could we be leading to a place where amazon just buys peloton outright they

Could do it with the change in the cushions uh absolutely as in there has been uh chatter in the past uh it’s hard to speculate right now it feels to me that uh the way the current management the new management in peloton we have a new ceo we have a new cfo uh we have a new head of strategy so there is a team that is being put together to help turn around the

Company to help turn around the company and uh get it better positioned so right now i would be very surprised if uh if there is an acquisition on the table in the near term by that over the next six to nine months beyond that if we if peloton is willing to sell on a position of strength uh that is more likely than uh selling in a position of weakness right

Now and rohit we know that peloton had a number of issues when it comes to pr we saw what happened with sex and the sex and city reboot some of those things that obviously were out of the control of peloton but where does peloton go from here once it starts with amazon what does this actually mean for peloton’s growth story um there are a few few recent uh

Near-term things that should help peloton’s uh financials as in for example peloton is holding on to a lot of old inventory uh so now they can put that old inventory into amazon warehouses that helps them with the near-term costs on top of that i think peloton is also offering free delivery as well as free setup they started charging for that remember back in

January now when when it comes to amazon they are trying to eat up that cost so there are certain financial near-term uh triggers that should help peloton’s income statement in the next six months beyond that uh we are still unsure what the the steady market demand in a post-pandemic world for uh for peloton’s bikes look like um so there is still that unclear

Uh kind of demand curve once we are out in a place where uh the world is world is completely reopened there are no supply chain shocks and peloton is now uh looking to expand its uh kind of a demand base as such so near-term very positive movement for uh peloton when it comes to amazon but once we get into next calendar year uh that is that is something that uh

We are still unsure of you have a neutral rating on the stock a 17 price target does this get you off the sidelines or what would make you more bullish on peloton um i think what would make make us more bullish on peloton is right now the company does not have a sustainable unit economics by that what i mean is when they create make a bike when they want to

Ship it from overseas and when they want to get it to your door the dollar they spend to make a bike they are spending more um to actually get into your door that’s not sustainable in my opinion they’re dropping the price of the bike and hence their gross margins are shrinking uh so as we get out of the pandemic as we get out of uh of their current issues with

Production with supply chain i think uh getting a sustainable unit economic model where the cost of the bike and the cost of the subscription is is significantly offset by the distribution perhaps amazon is the answer perhaps that’s what they’re getting going to get at but currently the business does not feel that they have a sustainable unit economic model they

Are somewhere in between right now well rohit we’re going to hear from peloton tomorrow morning they’re out with earnings the stock off 63 since the start of the year subscriptions are going to be in focus margins are clearly going to be something that the street will be watching very closely what are you expecting to see from peloton tomorrow um so near-term

What we had talked about based on our tracking we do surveys of subscribers we do surveys uh of uh people who are going willing to buy periton bikes um near term i think there is going to be a slight upside to june quarter june is one of the slowest quarters for the company obviously it is summer people are people are outdoors it’s nowhere close to uh kind of

Holiday shopping so so it is a slow quarter we know that but i think from what uh we think there is going to be upside to june numbers it’s the end of fiscal year so what that means is we expect the company to give guidance for the next fiscal year that’s the big unknown uh what the next 12 months look like how the company is looking at that we think uh peloton

It would be prudent for the company to just bring down the numbers reset the street expectations and then build up street confidence investor confidence from there on out if that’s what uh the company is going to do then probably we have a reset moment in the stock right now and then there is a base from which you could look into the long term but next year’s

Fiscal fiscal guidance is where next fiscal year guidance is what we would be focused on and what level of profitability what the company could get to over the next 12 months right now they’re in the cash burn mode if there is any sign of the company looking to reduce that cash burn over the next six months and beyond and show evidence of that that’s what we would be cheering for

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Peloton's partnership with Amazon 'opens up a new door' for the fitness brand: Analyst By Yahoo Finance