Why Peloton Interactive Stock Is Still Falling This Week

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What happened

Shares of Peloton Interactive (PTON -2.17%) are continuing their long, steady slide this week, looking like they will close down 8.4% from where they were last Friday, according to data from S&P Global Market Intelligence

The stock of the maker of connected fitness equipment was up more than 2% at 11:47 a.m. ET today, but that’s nowhere near enough to erase the deficit from the rest of the week.

Image source: Peloton Interactive.

So what

Trying to shake off its image as a luxury brand (though fitness equipment starting at $1,200 tends to imprint the picture in consumers’ brains that it’s not a necessity), Peloton has been cutting pricing and introducing lower-cost options.

Its new $300 Guide, a fancy smart camera that hooks up to a TV, might not erase that image, either, as there are other products on the market that are cheaper and more encompassing. Coupled with rampant inflation and real disposable income falling, even such lower-priced items might still seem too expensive.

Peloton is still growing, but much slower than investors were accustomed to, and now its connected fitness classes are facing more competition. Lululemon Athletica (LULU -0.09%) will launch connected workouts through its Mirror device. Although there are doubts about the efficacy of launching a similar product in what is becoming a crowded market, having another rival makes Peloton’s already subdued outlook look even dicier.

Now what

Peloton is not expected to turn profitable on an adjusted basis until 2023, but if the economy slows further (or worse, declines), reaching that threshold could be delayed. And it’s possible we’re in the first stages of a recession.

First-quarter gross domestic product fell 1.4% compared to an expected 1% rise, while the Consumer Price Index continues to roar higher, hitting 8.5% in March. We’re in the grips of inflation unlike anything seen in four decades, and Treasury Secretary Janet Yellen says it’s just something we’re going to have to live with for a while longer.

St. Louis Federal Reserve president James Bullard has said the Fed might need to become even more aggressive with interest rates than already planned, and has spoken approvingly of the harsh tactics undertaken by Fed chairman Paul Volcker in the 1980s when he hiked rates to 20%. Bullard says bringing economic growth to a halt could be necessary to tame inflation.

That’s not an environment conducive to selling $1,200 exercise bikes or $2,400 treadmills, and despite Peloton having lost 85% of its value, we might not have reached the bottom yet.