Peloton (PTON) 2nd Quarter Earnings: What to Expect

Is now a good time to take Peloton (PTON) for a spin? At a time when investors have become less enthusiastic about high-growth, richly-valued IPOs that offer tons of promise but little profits, Wall Street analysts have become more bullish about Peloton’s growth prospects.

The exercise equipment maker is set to report second quarter fiscal 2020 earnings results after the closing bell Wednesday. Since going public at a price of $29 per share, Peloton stock has risen as much as 27% to $37.02 per share. With the stock trading some 13% cheaper, investors should buy, according to Raymond James analyst who recently raised the stock’s price target to $36 from $32. Doug Anmuth, analyst at JPMorgan, is also excited about the company’s prospects.

Citing channel check data, Anmuth boosted his target price to $38 from $34. “We believe Peloton is well positioned to disrupt the fitness industry through its at-home connected fitness subscription platform, with significant runway for growth as the company’s current SAM is only ~5% penetrated,” he wrote. Peloton is seen as the best way to capitalize on consumers’ changing habits towards health and fitness. On Wednesday the management must highlight this level of confidence on the conference call.

In the three months that ended December, Wall Street expect the New York-based company to post a loss of 36 cents per share on revenue of $422.93 million. This compares to last quarter when the loss came to 14 cents per share on revenue of $228 million. For the full year, ending in June, the company is expected to lose $1.26 per share, while full-year revenue is expected to rise 60% year over year to $1.49 billion.

For Peloton, that fact that roughly 50% of its revenue come from hardware sales, while posting losses, has made it tough for investors to justify giving it a higher multiple. That said, the projected 60% surge in full-year revenue offers reason for optimism. What’s more, in its attempt to create a new market in connected fitness, Peloton is showing strong vitals, particularly in the realm of connected fitness where subscribers are completing 11.5 workouts per month. That’s up from 8.4 in 2018 and 7.5 in 2017.

Customers appear willing to shell out the $40 per month subscription cost and the company is figuring out ways to capitalize on the growing environment for health and wellness, while diversifying into other fitness categories. So far it’s paying off. In the fiscal first quarter, it beat on both the top and bottom lines, delivering Q1 revenue that doubled to $228 million, up from $112.1 million a year earlier, while narrowing its loss to $1.29 per share, beating estimates handily by 22 cents.

Just as impressive, it ended the quarter with 560,000 paid subscribers, up from almost 277,000 a year ago. The company expects full-year subscribers to reach 885,000 to 895,000, suggesting its sees no signs of slowing down. On Wednesday investors will want to hear how these growing subscribers can help deliver a profit. Peloton’s brand quality, first-mover advantage and lack of real competition could accelerate its money-making potential.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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