Investors who decided to take Peloton (PTON) for a spin, at any point in 2020, are happy that they did. With the stock up 350% over the past year, you would be hard-pressed to find a period when the PTON stock didn’t perform, particularly with the pandemic forcing gyms across the U.S. to temporarily close or in some cases, permanently.
But what will 2021 bring for Peloton? The exercise equipment maker is set to report second quarter fiscal 2021 earnings results after the closing bell Thursday. The company has seen a surge in membership as health enthusiasts look for alternate ways to stay fit amid the lockdown restrictions. But can Peloton turn that increase in usage into sustainable profits? That’s one of the many questions investors hope to get answered.
While the market assumes Peloton’s at-home connected fitness subscription platform is well-positioned to disrupt the fitness industry beyond the pandemic, valuation concerns have emerged. Down 7% over the past week and 3% year to date, PTON stock has given up as much at 17% since reaching its all-time of $171 earlier this month. Analyst Jason Helfstein at Oppenheimer isn’t worried, however. Helfstein, who has an Outperform rating on the stock, believes Peloton still has tons of tailwinds from gym cancellations.
Helfstein recently bumped his price target to $185 from $140, which assumes 27% premium from current levels. The company’s biggest near-term challenge has been with keeping up with elevated demand. Management believes it has found a solution, spending $420 million to acquire fitness-equipment company Precor and immediately gaining not only additional manufacturing capabilities, but also new expansion opportunities. Investors will want more details on this deal and well as bullish guidance that suggests manufacturing constraints will be eliminated.
In the three months that ended December, Wall Street expect the New York-based company to earn 8 cents per share on revenue of $1.03 billion. This compares to the year-ago quarter when it lost 18 cents per share on revenue of $466.30 million. For the full year, ending in August, the company is expected to earn 38 cents per share, reversing a 32-cent loss a year ago, while full-year revenue is expected to rise 116% year over year to $3.95 billion.
With gyms closing in many states at the start of the pandemic, or in some cases were on the verge of being closed, Peloton dazzled the market with a 140% surge in Q1 subscribers, delivering a net add of 1.33 million, topping estimates by 1 million. Digital subscribers skyrocketed 382% to 510,000. All of which contributed to Q1 revenue surging 232% t0 $758 million, compared to the prior quarter growth of 172%. Aside from revenue beating consensus estimates by $24 million, adjusted profit was $119 million, crushing estimates of $84 million.
On Thursday investors will want to whether Peloton can improve on these metrics. There’s a strong sense that a top- and bottom-line beat is in order given that Covid cases across the country has been on the rise since the start of the holiday season. And given consumers’ changing habits towards health and fitness, Peloton’s brand quality, first-mover advantage should insulate it from the competition. But its revenue and subscriber guidance for 2021 will need to reflect that.
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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Richard Saintvilus
After having spent 20 years in the IT industry serving in various roles from system administration to network engineer, Richard Saintvilus became a finance writer, covering the investor's view on the premise that everyone deserves a level playing field. His background as an engineer with strong analytical skills helps him provide actionable insights to investors. Saintvilus is a Warren Buffett disciple who bases his investment decisions on the quality of a company's management, its growth prospects, return on equity and other metrics, including price-to-earnings ratios. He employs conservative strategies to increase capital, while keeping a watchful eye on macro-economic events to mitigate downside risk. Saintvilus' work has been featured on CNBC, Yahoo! Finance, MSN Money, Forbes, Motley Fool and numerous other outlets. You can follow him on Twitter at @Richard_STv.
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