After Morgan Stanley increased its user growth forecasts, Peloton stock (NASDAQ:PTON) rose substantially on Wednesday. The second quarter of the company’s fiscal year saw “significantly improved” traffic trends as a result of new collaborations, third-party distribution, and holiday-season promotions, according to a team of analysts led by Lauren Schenk and Brian Nowak. Peloton reportedly recorded 138K net adds, which is significantly more than the previous estimate of 60K from the bank and 32K from the company’s tracker.

We see a significant possibility of an F2Q net additions beat because promotions likely increased the F2Q conversion rate relative to F1Q and new 3P channels, the team said. If PTON does achieve a net adds beat, it should give the market some encouragement that the numerous demand strategies the company has put in place are beginning to pay off—even if they aren’t as significant as bulls had hoped.

Peloton Stock Outlook

However, it is anticipated that the promotional activity will have an impact on margins, increasing risk to the bottom line for the upcoming quarterly report on February 3. As a result, the team cut projections and decreased Peloton’s price target from $5 to $4.50 while keeping an Equal-Weight rating. During Wednesday’s trade, shares of Peloton increased by 4.44%.

Peloton wasn’t all that long ago a pandemic darling, with its share price soaring as social estrangement during the epidemic took hold and gyms closed.

The company’s original fairytale tale, however, has changed into a nightmare. Sales of Peloton’s linked exercise goods (bikes and treadmills) fell 59% to $204 million in the first quarter of its fiscal year (which concluded on September 30), while the company’s losses increased to $408 million. The pandemic’s surge hasn’t persisted, and more frugal buyers are unable to justify Peloton’s equipment’s exorbitant selling costs in the face of sky-high inflation.

The departure of high-profile executives like Hisao Kushi and John Foley, as well as the other co-founder of the firm, Peloton, in September, should serve as another red flag for prospective investors.

Investors should stay away from this company since Peloton is still losing a lot of money, there is a potential recession on the horizon, and inflation is still high.

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