Peloton Interactive (NASDAQ: PTON) gets a vote of confidence, from the inside

Peloton Interactive (NASDAQ: PTON)—the maker of high-end exercise equipment including a famous stationary bike that soared to popularity during the pandemic—has had a rough few years, with shares declining 97% from its stay-at-home era peak as people returned to public gyms and sporting leagues. Now, an executive is signaling that the company may be finally ready to rise up from rock bottom.

Chief product officer Nick Caldwell purchased 31,337 shares last month for a total of $133,182, with the transaction marking the first time that an insider used their own money to acquire company stock in almost three years. While C-level officials often sell shares they’re awarded as part of compensation packages, the market tends to view purchases they make as an expression of confidence. It’s the ultimate way to increase their skin in the game, as no one would presumably invest personal funds in a company if they didn’t think it was on the right track.

Peloton does indeed appear to have turned a corner after embarking on a cost-cutting plan earlier this year, hitting a number of milestones in its last quarter with revenue growth for the first time in over two years and meeting or exceeding its guidance on key metrics. While user numbers were essentially flat—along with sales and subscription revenue—the company scored a big win with product margins, which rose to 8.3% from a negative 37.5% a year ago. Its shares have risen 49% over the past month, drastically outperforming the S&P 500 index over the same period.

Perhaps most notable in the latest earnings release is the fact that subscription plans, which give equipment owners access to a large array of live fitness classes that can also be watched on demand, accounted for 67% of total sales. The company designs and sells expensive equipment, but it’s essentially become a content producer with a group of captive subscribers. As any Peloton user can tell you, you’re pretty much locked-in once you purchase the $1,500 bike. If you stop paying the monthly subscription fee for classes, it immediately becomes a glorified brick that does little more than take up space. 

Peloton’s loyal and affluent user base appears likely to remain steady for now, and the company is moving on several fronts that could help it return to profitability by further improving margins. There are plans to expand social networking, introduce gaming features and announce new partnerships, while interim Co-CEO Chris Bruzzo said the company is working to increase the brand’s popularity with men. It’s also looking for a new CEO, who could quickly add momentum to the efforts already underway.

“The entire Board is highly focused on the CEO search, and we do hope to have some news to share there in the very near term,” interim Co-CEO Karen Boone said in the latest earnings call. “We are focused on moving quickly, but our top priority is finding the right leader.”

Peloton’s outlook for its next fiscal year is modest, with expectations for declining hardware sales and increased subscriber churn. However, it’s predicting continued margin improvements, and initiatives to boost engagement and forge new partnerships could pave the way for growth unique to platform-based businesses. That all means that Peloton may be getting ready to start spinning again.