Peloton Interactive (NASDAQ: PTON) needs a growth catalyst badly. The company's bikes were hot buys during the early stages of the pandemic amid lockdowns when people couldn't go to gyms to exercise. But as things have returned to normal, demand has stalled. Revenue is going in the wrong direction, and the business is nowhere near profitable.
Enter TikTok. The social media platform is partnering with Peloton in a move that the bike maker hopes will help give its sales a much-needed boost. And given how helpful TikTok has been in helping Novo Nordisk's diabetes drug Ozempic rise in popularity, investors may be hopeful that the social media platform can have a similar positive effect on Peloton's business as well.
Adding content could help with subscriptions
There will now be a dedicated hub on TikTok, #TikTokFitness Powered by Peloton, where people can access Peloton content, which will include live classes and celebrity collaborations. This goes hand in hand with the company working on trying to get more people using its app, where it sells monthly subscriptions that can help people create custom workouts.
But the company is struggling on that front. As of the first quarter for fiscal 2024, which ended on Sept. 30, 2023, the company's paid app had 763,000 subscribers, down 13% from a year ago. Having more content available on TikTok, as well as more exposure on the platform, could draw in more subscribers. That's the hope, anyway.
Can TikTok give Peloton an Ozempic-like boost?
Ozempic has been a hot trend on social media for multiple years, resulting in such strong demand for the diabetes drug (which people have been using for weight loss) that there have been shortages of it. During the first nine months of 2023, sales of Ozempic have risen by 53%. And that was on top of an even stronger year in 2022, when the diabetes drug's sales jumped by 77%. Novo Nordisk has seen its valuation soar by more than 200% since 2021, largely due to the drug's success.
But it's not as if Peloton hasn't been popular on social media. There are actually more views on TikTok that include the hashtag Peloton (1.6 billion) than there are for Ozempic (1.3 billion).
That said, not all news or social media views are created equal. While Ozempic has garnered fewer views, it has a generally favorable association with weight loss, while Peloton has often been involved with negative press relating to bike recalls and at times controversial advertisements. Getting more views is by no means a surefire recipe for success or growth.
The TikTok partnership isn't likely to help
TikTok can make things go viral in a hurry -- both in a good and bad way. Partnering with the social media company will give Peloton some additional exposure, but given that it's already fairly popular on TikTok, I'm not sure how much of an added boost it can give the exercise company.
This is not an unknown company, as social media did help put Peloton on the map in its early growth days. Unless Peloton comes out with an exciting new feature or product that goes viral on TikTok, I wouldn't expect the social media platform to have much of an impact on the company's sluggish sales.
A beaten-down stock with many problems
Since 2021, shares of Peloton have crashed a disastrous 96%. Today, the stock trades at a lower price than before the pandemic began. In its most recent quarter, Peloton reported revenue of $595.5 million, which was down 3% year over year. While the company reduced its net loss from $408.5 million to $159.3 million, it remains far from breakeven.
And Peloton still continues to burn through cash, with the company's cash from operating activities during the three-month period posting a negative $79.2 million. That's an improvement from the $202.8 million it burned through a year ago, but any amount of cash burn can be problematic, particularly for a company that is unprofitable and struggling to generate growth.
Should you invest in Peloton stock?
Peloton partnering with TikTok is just another way for the company to spend on marketing and promotions. This isn't some quick way for Peloton to jump-start its growth rate. It will have to do that by offering value to consumers, convincing them that its bikes and subscriptions are worth their price tags. And right now, that doesn't appear to be happening.
This is a dangerous stock to own, as Peloton's cash burn and lack of profitability could make it probable that it falls further in value this year. Investors are better off looking at other growth stocks to add to their portfolios instead.
Should you invest $1,000 in Peloton Interactive right now?
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David Jagielski has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Peloton Interactive. The Motley Fool recommends Novo Nordisk. The Motley Fool has a disclosure policy.
