Peloton (PTON - Free Report) stock began to soar in mid-March when Wall Street dove into stocks that were viewed as safe bets to grow during the stay-at-home environment. The high-end, connected stationary bike company’s recent quarterly results highlighted its coronavirus strength, and people might not flock back to gyms, even if they open somewhat soon.
Before we look at its recent results and what to expect going forward, it’s worth quickly reviewing Peloton. The company was founded in 2012 and its high-tech stationary bikes have taken off in popularity since then. Pelton offers users the ability to follow along with classes on their connected TV monitors, and it is part of a growing movement of higher-end workout classes and products.
Peloton’s connected bikes start at $2,245, while its newer treadmills begin at $4,295. Perhaps more importantly when it comes to stable longer-term growth, it makes money from its $39 per month “All-Access Memberships.” Meanwhile, people who don’t own Peloton equipment can pay $12.99 a month for a digital membership that allows them to follow along on classes for indoor cycling, running, strength, and more.
First Quarantine Quarter
The New York-based company’s Q3 fiscal 2020 results—reported on May 6—wowed Wall Street, and they captured the three-month period that ended on March 31, which only included a few weeks of the stay-at-home push in the U.S.
Peloton’s quarterly revenue surged 66% to $524.6 million and easily topped our $487.5 million Zacks estimate. Meanwhile, its connected fitness subscribers jumped nearly 100% to 886,100 and paid digital subscribers grew 64% to over 176,600. Its overall subscription revenue soared 92% to account for 19% of total quarterly sales.
Plus, its average net monthly connected fitness churn came in at its lowest level in four years, at 0.46%. On top of all of that, its users averaged more monthly workouts, and its total workouts soared from 18 million in the year-ago period to over 44 million.
The company also extended its normal 30-day free trial period for its digital subscription up to 90 days, from March 16 through April 30. Since the extension was announced, over 1.1 million people have signed up for the free trial—over 80% of these workouts were in categories that didn’t require a bike or treadmill, such as strength, yoga, and meditation.
People are clearly turning to Peloton’s offerings without gyms to go to, and the company expects to keep on growing even though the increased demand has stretched delivery times and raised its costs. But these seem like champagne problems as companies big and small see their sales dry up during the coronavirus.
Peloton said it expected its fourth quarter fiscal 2020 revenue to come in between $500 and $520 million, with the mid-point representing 128% expansion from the year-ago period—which would crush last quarter’s 66% top-line growth. And our Zacks estimate calls for PTON’s quarterly sales to top its own guidance at $522.9 million.
Overall, Peloton’s fiscal 2020 revenue is projected to climb over 90% to reach $1.74 billion. This would come on top of 2019’s 110% expansion. Peeking further ahead, PTON’s fiscal 2021 sales are expected to jump another 45% to hit $2.52 billion.
On the bottom line, Peloton is expected to report adjusted positive earnings of $0.07 a share in Q4. Investors should note that this would mark its first quarter of positive adjusted earnings as a public firm and easily top Q3’s loss of -$0.20 a share.
The nearby chart shows that PTON’s Q4 earnings estimate has climbed from -$0.22 a share to +$0.07 since it posted its results last week. This is part of Peloton’s overall positive earnings revision trend.
Peloton stock is now up over 80% since it went public in late September of 2019. This helps it crush fellow 2019 IPO standouts Uber (UBER - Free Report) and Beyond Meat (BYND - Free Report) during this period.
More recently, PTON shares have skyrocketed 140% since March 12, from under $20 a share to around $46 a share on Tuesday. The tech-focused indoor fitness company’s stock has also blown away stay-at-home standouts such as Amazon (AMZN - Free Report) , Netflix (NFLX - Free Report) , Zoom (ZM - Free Report) , and others over this stretch.
Despite this climb, PTON is trading at a discount against its six-month highs, at 5.3X forward 12-month sales vs. 5.8X. For reference, high-flying Zoom stock is trading at 45.8X forward 12-month sales and NFLX is trading at 7.4X.
Investors should note that PTON stock is pretty heavily shorted. This means that people covering their short positions could have helped the recent rally, and it might run higher as a ‘prime short squeeze candidate.’
Plus, Peloton is currently a Zacks Rank #1 (Strong Buy), and its balance sheet is solid. It closed the quarter with $1.43 billion in cash and equivalents, against $498 million in long-term debt.
Some investors might want to wait for a pullback, given its recent run. However, Peloton appears to be both a worthy near-term play for its ability to expand during the coronavirus and for its longer-term growth potential.
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