(CNN) — Peloton may have bigger problems than the public relations fallout from the controversial ad that became a meme. Short-seller Citron Research said Tuesday it expects the stock to plunge nearly 85% to just $5 a share.
Citron said in the report, titled “Investors Peddling Themselves into Frenzy,” that Peloton is reminiscent of GoPro and Fitbit.
Those two companies were once market leaders in their respective categories of wearable action cameras and fitness trackers. But an onslaught of competition hurt their sales and profits and proved that they were just one-trick ponies.
Fitbit is now in the process of selling itself to Google for about $2.1 billion, or $7.35 a share. That’s about 85% below the stock’s peak price in August 2015, shortly after its initial public offering.
Citron said when you dig deeper into Peloton’s business model, there is nothing that stands out and makes them unique enough to be immune from competitive threats.
“Once you get past management’s grandiose talks, you have a company that sells hardware and software,” Citron said.
Shares of Peloton plunged more than 6% on Tuesday to about $32. But that’s still above the company’s initial public offering price of $29 from September — not to mention Citron’s dour price target.
Citron said that “while Peloton has enjoyed a first-mover advantage, the lack of differentiation of its bike has finally caught up to it as the competition is not only making virtually identical exercise bikes but ones that are both more affordable and functional.”
The company said there will be no reason to spend $2300 on a bike (not to mention the subscription for classes) when there are cheaper and similar versions from the likes of NordicTrack, ProForm, Echelon, Bowflex, and others.
“Competition is so intense that some competitors are even offering to give the exercise bike for free with a digital subscription. Citron believes Peloton’s glory days of hardware sales are in the rear-view mirror,” Citron said.
Peloton was not immediately available for comment about the Citron report. But management has defended its latest ad, saying that it was not sexist as many have claimed.
CEO and founder John Foley also said at a UBS investment conference this week that Peloton expects to generate even more revenue when it starts selling a treadmill.
Foley said that rivals are selling “dopey old treadmills” that wind up becoming nothing more than a “clothes hanger” that’s “dusty.” Exercise enthusiasts, Foley claims, will want Peloton equipment because of all the added services that come with it.
But Citron said that Peloton’s valuation is “ridiculous” when you compare it to just about any other company that has a subscription-based revenue model. That includes gym owner Planet Fitness, dating service Match and clothing company Stitch Fix as well as media companies like Facebook, Netflix, Roku and Spotify.
Citron concluded its report by saying “there are more things wrong” with Foley’s comments than “the now infamous commercial” and added that his “remarks are filled with hubris” and “ludicrous.”