Peloton Interactive Will Face Court Battle Over Misrepresenting On-Demand Library Size

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A class action lawsuit against Peloton Interactive ($NASDAQ:PTON) Inc is progressing after a U.S. district judge issued a ruling that said customers in New York from April 2018 to March 2019 could try to prove they overpaid because the exercise equipment and services company was silent about the “imminent” removal of much of its digital library and misrepresented the size of its on-demand library of classes. The lawsuit is focused on a decision by Peloton’s Interactive in March of 2019 to cut more than half of its estimated 12K on-demand classes due to a licensing battle with music publishers over the use of songs. This decision caused many customers to cancel their subscriptions, and the lawsuit alleges that Peloton was aware of the impending removal of classes but failed to disclose this information. It is not yet clear how this lawsuit will affect Peloton’s market and earnings in the long term, but it is certainly possible that it will have a negative impact.

Market Reaction

The news of the lawsuit sent Peloton’s stock soaring on Friday, with the stock opening at $12.1 and closing at $13.5, up 13.6% from the previous day’s close of $11.9.

VI Analysis

Peloton’s fundamentals reflect its long term potential. The company’s cashflows and debt levels suggest that it is likely to be able to sustain future operations in times of crisis. Peloton is classified as a ‘rhino’ company. This means that it has achieved moderate revenue or earnings growth. Due to its moderate growth rate, such company is deemed less risky and volatile as it pursuits a sustainable growth rate. Peloton is strong in growth, medium in asset, profitability and weak in dividend. For more details please visit Star Chart.

Summary

The lawsuit, filed by shareholder Andrew Wilson, accuses Peloton of making false and misleading statements about the size of its on-demand library, which Wilson says is much smaller than Peloton has represented. The lawsuit comes as Peloton’s stock price has surged 13.6% following the release of positive earnings. While Peloton’s strong earnings report was undoubtedly a factor in the stock price increase, the news of the lawsuit may have also played a role. Investors should be aware of the lawsuit against Peloton and the potential negative impacts it could have on the company. However, the stock price increase following the release of earnings indicates that investors are still confident in Peloton’s long-term prospects.