Peloton’s Miss on Quarterly Sales Outlook Overshadows Its Growth

(Bloomberg) -- Peloton Interactive Inc., the maker of internet-connected exercise equipment, said on Wednesday that sales in the current quarter would be lower than analysts’ estimates. That news overshadowed the company’s strong holiday earnings and optimistic sales projections for 2020, sending its stock tanking after-hours.

New York-based Peloton said revenue in its fiscal third quarter would be $470 million to $480 million, missing the average projection of $494 million. The shares were down about 9% in extended trading.

Peloton’s stock has had a rocky few months since its initial public offering in September. The company floundered in the months following its IPO, as investors questioned its ability to turn a profit. In December, following a brief recovery, the market gave Peloton another beating after one of its ads -- featuring a husband buying an exercise bike for his already-svelte wife -- was widely mocked on the internet. In after-hours trading, the share price hovered close to its IPO price of $29, well below its early-December highs.

Besides the lower-than-expected sales outlook, Peloton’s second-ever quarterly financial report Wednesday included some upbeat news for investors. Sales rose to $466 million for the quarter ended Dec. 31, up 77% from a year earlier. It projected as much as $1.55 billion in revenue in 2020, higher than the average analyst estimate of $1.49 billion, according to data compiled by Bloomberg. And the company lost less money than analysts expected -- losing 20 cents a share in the last quarter, instead of the 33 cents a share Wall Street had anticipated.

Peloton is best known for its stationary bikes, which are connected to a tablet that can live-stream spin classes, but it’s also made a push into other areas of home fitness. The company recently added an app for the Apple Watch that allows users to track workouts, as well as the ability to stream classes on Amazon’s Fire TV. And it sells a treadmill and a subscription-based app for live and on-demand classes.

“Over 30% of classes taken in Q2 were not cycling,” said Peloton Chief Executive Officer John Foley in a conference call after the report. Other companies are making moves into digital fitness, he said, but added that Peloton plans to “maintain our lead” by enhancing the current product lineup and adding new offerings.

Peloton said about 149,000 new subscribers signed up during the last quarter, bringing its total to 712,000. Peloton now anticipates it will have between 920,000 to 930,000 connected fitness subscribers this year, above its previous projection of as many as 895,000. Connected fitness subscribers are people who own a piece of Peloton hardware and pay a monthly subscription to access digital workouts -- a more lucrative category than people who pay for its app alone.

“We believe we will continue to see strong conversion from digital members into connected fitness members,” Foley said.

Another silver lining for the company was its performance over the holidays. Despite the outpouring of social media scorn that accompanied its Christmastime advertisement, the buzz didn’t seem to hurt Peloton’s performance. In fact, it may have helped.

“Peloton’s ad proved beneficial, amplifying the brand and driving record search trends across markets,” Raymond James analyst Justin Patterson wrote in a note to clients before the earnings report. “Peloton’s combination of brand, content breadth and bricks-and-mortar presence provide a customer acquisition and retention edge.”

Investors have previously expressed concern over how much Peloton can grow its market given the high price of the equipment it sells, and the increasing competition from products like Mirror and workout apps from Nike Inc. and Aaptiv Inc.

JPMorgan analyst Douglas Anmuth wrote in a recent note that he expects Peloton to outperform in 2020, saying the stock was one of his team’s top picks, but adding, it’s “also one of the most debated.”

©2020 Bloomberg L.P.

BQ Install

Bloomberg Quint

Add BloombergQuint App to Home screen.