12:03 PM EDT, 08/23/2024 (MT Newswires) -- Peloton Interactive ( PTON ) seems to have achieved "sustainable profitability" given its fiscal 2025 earnings before interest, taxes, depreciation, and amortization forecast, however, growth remains "elusive," Morgan Stanley said in a note Friday.

Peloton on Thursday set a fiscal 2025 adjusted EBITDA guidance of $200 million to $250 million, well above Morgan Stanley's estimate of $189 million and the $108 million expected by the market, driven by cost reduction and removal of low-return investments, according to the note.

However, these cost reductions are impacting Connected Fitness subscriber growth, with fiscal 2025 guidance showing an annual decline of 8% to 10%. It's unclear when the subscriber base might stabilize or if Peloton can balance revenue and profitability effectively, Morgan Stanley analysts said.

The company's expected reduction in new subscribers was surprising, suggesting a significant drop in new customer acquisition. With guidance for a decline of 230,000 to 300,000 in net additions and 525,000 churned subscriptions, gross additions of only 225,000 to 295,000 are expected for fiscal 2025, compared with 470,000 a year earlier, the analysts added.

"We do think there is significant conservatism in the subscription guidance as the company is not

building in benefit from various early stage growth initiatives while also likely leaving room for the new chief executive officer to implement their strategy," the analysts said.

The analysts lowered their revenue forecasts for fiscal 2025 and 2026 by 3% and 7%, respectively, and increased their adjusted EBITDA estimates by $55 million for each year.

Morgan Stanley raised the price target on Peloton to $3.50 from $2.50 while keeping its equalweight rating.

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