JMP boosts Peloton’s price target to $109 from $59

JMP raised their price target for Peloton to $109 from $59. The firm cited strong usage with no signs of typical ‘summer seasonality’. In addition, according to a study by JMP, 50% of U.S. gym members will not return to the gym, which may encourage further engagement. The Final Round panel breaks down the details

Video Transcript

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SEANA SMITH: Welcome back to The Final Round here on Yahoo Finance. Well, let's talk about a big mover lately, Peloton, the stock closing off today just around 2%, but up substantially over the last six months. Now today, we got a big call-out from JMP. They're raising their price target, nearly doubling their price target to $109 a share. That's up from $59 a share.

Inez, I'd love to get your thoughts on this, because this seems to me like another case of analysts almost tripping over themselves trying to keep up with the stock. Earlier this week, we talked about JP Morgan's call on this stock. They had a price target of $105 a share. Analysts just simply cannot keep up.

INES FERRE: No, they can't. And part of the argument here with this JMP call is that this is, of course, a COVID play. It's people working out from home, the pandemic being a tailwind, also the 90-day trial.

And if you think about it, also, if you have a 90-day trial of a big bike that has to be installed in your living room or bedroom or wherever, chances are that once you start trying it out, you're not going to really want to take it away. And also, people not really wanting to go back to the gym just yet. Even though gyms have reopened with social distancing measures, they don't necessarily want to go back to the gym.

Now, JP Morgan's call earlier this week was a top pick with a price target of $105. And what JP Morgan was basically saying is that at this point Peloton has to keep up with the demand, because right now there's a backlog of these that are being ordered, and the delivery time for the bikes are around seven weeks, even though JP Morgan had increase-- excuse me-- even though Peloton had increased its manufacturing capacity. So at this point, it's a matter of keeping up with the demand for these bikes.

AKIKO FUJITA: So I think there's an interesting case here to be made about Peloton not just being on the hardware side of things with bikes. Right now we talk so much of this stock is just a subscription that comes with the bikes. But certainly we've seen other classes being expanded on the platform, and that's part of the case here in the note, which talks about the 90-day trial.

That's not just for those who have the bikes in place, but those who are trying out some of those other classes as well. So you think about all the tentacles that Peloton's starting to build, I'm not sure there is a case to be made for such a bullish call. But it certainly requires, I think, rethinking this stock beyond just sort of the standard bike. Even though yes, if you order a $2,000, $3,000 bike, that's going to be the biggest revenue driver, there are other avenues that are opening up for Peloton though.

MYLES UDLAND: And you know, we talked about this idea, and Seana mentioned it, about is an analyst just tripping over themselves to try to justify this kind of price target. And maybe that is the case. But I think it also forces analysts to be very creative. This isn't just a DCF analysis, we've tweaked our model and now we've got a higher price target.

And figure 7 in this note is something that I really, really like, which is the delay in shipping by city for Peloton and how it has changed over time. And I think it speaks to what JMP is highlighting, which is this relentless demand curve for Peloton bikes, with the exception of really a couple cities. And I would just note that in New York right now, as Seana is currently experiencing, the wait for a bike is nine to 11 weeks, which is four weeks higher than it was in the beginning of June.

So we've seen demand for the bike, and I think what we-- I think Peloton's core market, right, New York and San Francisco, increase by a full month over the last three months. So there's clearly-- maybe they have their own issues with production, but it's not like people are saying, oh, it's going to take too long, or I'm going to think about something else. And gyms, by the way, are now open here in this area. And so to see that increases is notable to me.

And the cities where demand has fallen, Salt Lake City, well, there's lots of things you can do outside there. You can also actually go to a gym. Dallas, you know, we know the story in Texas. Chicago's the only one that I would say, as you head towards the winter in Chicago, wouldn't you like to have your Peloton bike now?

That delivery window is down-- that delivery wait is down to two to four weeks. But everywhere else, really, across their core markets, again, Miami, DC, these are, you know, 10 to 11-week waits, as well as New York. I think that is really a creative way, and I think a clear way, to understand just how durable and surprising the demand for this product has been through the summer.

SEANA SMITH: Yeah, it certainly has. And I think that that's going to be a big focus on the earnings call next week, because I think a lot of people are talking about the fact that Peloton hasn't exactly been able to close the gap between supply and demand. We know that during the last quarter, they said that they had doubled their supply, doubled their production since the March figures.

Clearly, that hasn't been enough to keep up, so it will be interesting to see how they plan to address that going forward. Of course, a couple of analysts pointing to the fact that they could cut back on marketing spend, at least in the short term, as a result of that. But still, I think that that's an issue that's going to be, I think, a focus point for a lot of these analysts going forward.

And then, Akiko, going back to one of the things that you said, talking about their membership and how it's so much more than just the bike or just the treadmill. And they were able to really expand their membership, get a lot of new customers, I think, through that 90-day free trial on their app. I think a lot of people who hadn't tried Peloton in the past just associated it with the bike or with the treadmill.

We're really showing that it's so much more than just that. And you can see that through the engagement numbers that were in this note that JMP highlighted. They talked about their Instagram following, how that's almost doubled here since the levels that we saw back in March. Instagram followers up to 960,000 from 600,000 at the beginning of April.

And then also just the-- their viewers here on the-- Peloton's membership page up over 500%, up over 560%, actually, year-over-year in Q2. So it's hard to argue with those numbers. But again, the question here is whether or not this demand is going to continue as more gyms open and people maybe get a little bit closer to their life going back to normal.