June 26, 2022

A Peloton Interactive Inc. Tread exercise machine available for sale in the company’s showroom in Dedham, Massachusetts, USA on Wednesday, February 3, 2021.

Adam Glanzman | Bloomberg | Getty Images

Peloton stock rose more than 9% on Friday as investors realized the financial success of recalling the company’s treadmill wasn’t as bad as some feared.

The exercise equipment maker said demand for its high-end cycles remains strong as people increasingly break away from home and gym routines and pandemic restrictions ease.

Peloton is also planning to launch in Australia later this year and is increasing marketing spend to reach new customers.

“While the recall will hit the financial data in the short term and push back the Tread financial data by a quarter or two, we consider this to be a prudent decision in the long term,” said Barclays analyst Mario Lu in a statement to clients. “We continue to see Peloton as the leader in connected digital fitness.”

When Peloton announced its fiscal third quarter results Thursday, the company announced that fourth quarter revenue will decrease $ 165 million due to the recall. According to Refinitiv, fourth quarter revenue is around $ 915 million, up from analysts’ estimates of $ 1.12 billion.

The projected $ 165 million impact consists of a dip of approximately $ 105 million due to a lack of treadmill sales during the reporting period as all sales cease, Peloton said. The company also estimates that about 10% of current treadmill owners will request a refund for their machines, which cost $ 4,300 each and would cut sales by an additional $ 50 million.

Telsey Advisory Group analyst Dana Telsey expected the recall to have a greater impact. It kept its outperformance rating on stocks, but lowered its price target from $ 150 to $ 120 as “there is uncertainty about the ultimate financial impact of the Peloton recalls and brand name.”

However, she found that demand for Peloton’s Bike and Bike + machines is still solid. And the more expensive solution will be for Peloton’s Tread + machine, rather than the lower-cost Tread version, which is a much lower source of revenue overall, Telsey said.

Peloton shares closed at $ 83.78 on Thursday. The stock is down roughly 45% since the start of the year, bringing the company’s market cap to around $ 24 billion. Shares were down nearly 15% on Wednesday, the day the company announced its voluntary recall, wiping $ 4.1 billion off Peloton’s market value.

On a call, CEO John Foley went through the steps the company is taking with the U.S. Consumer Protection Safety Commission to bring the Tread to market in the U.S. later this year. It was scheduled for May 27, but will be pushed back until Peloton and the CPSC can work on new safety protocols.

That could possibly happen as early as July, Foley said.

According to Telsey, that’s also earlier than many people expected.

“Somewhat lost in the Tread / + recall discussion was a very strong third quarter,” said Doug Anmuth, an analyst at JPMorgan. “Peloton exceeded all metrics.”

– CNNBC’s Michael Bloom contributed to this coverage.