In an effort to cut costs and streamline its supply chain, Peloton (PTON) disclosed that it will cease all its in-house production of bikes as well as treadmills. Following the news, PTON shares gained 3.7% to close at $9.25 on July 12.
Furthermore, the company will transition its manufacturing capabilities by expanding its long-standing partnership with leading Taiwanese manufacturer Rexon Industrial Corp.
The New York-based exercise equipment and media company, provides internet-connected, interactive fitness products, including bicycles and treadmills such as the Peloton Bike and the Peloton Tread, for live and on-demand classes.
PTON Transitions to Third-Party Manufacturing
Rexon is a leading Taiwanese manufacturer with over 50 years of experience. It has partnered with Peloton for many years, helping it to produce the hardware for its iconic products.
According to the current expanded partnership deal, Rexon will be responsible for manufacturing the hardware for Peloton Bike as well as the Tread product lines.
Peloton has also decided to halt its operations at its Tonic Fitness Technology, Inc. facility for the rest of the year. The company added that it will continue to maintain its presence in Taiwan.
PTON CEO Aims to Reduce Cash Burden
Commenting on the move to simplify its cost structure, Peloton CEO Barry McCarthy stated, “We believe that this along with other initiatives will enable us to continue reducing the cash burden on the business and increase our flexibility.”
He further added, “Partnering with market-leading third party suppliers, Peloton will be able to focus on what we do best – using technology and content to help our 7 million Members become the best versions of themselves.”
Wall Street’s Take on Peloton
The Wall Street community is cautiously optimistic about the stock, with a Moderate Buy consensus rating based on 14 Buys, 10 Holds and two Sells. The average Peloton Interactive price target of $21.48 implies 132.22% upside potential to current levels.
Key Takeaway
The COVID-19 blockbuster stock, Peloton, has seen its market capitalization dwindle from the highs of $50 billion to as low as $3 billion currently. Over the past year, the company has lost over 90% of its market cap.
As people started returning to gyms and other outdoor sports following the easing of COVID-19 restrictions, demand for Peloton’s equipment has plummeted, leading to a slowdown in its monthly subscription growth.
Huge unsold inventory pile-up and diminishing sales led to the company’s worst-ever reported quarterly loss in May. Thus, outsourcing, combined with other turnaround initiatives, is a step in the right direction to alleviate the cash burden of the company.
