Far more people than expected were spinning their wheels on Peloton bikes as they worked from home, enabling the connected fitness pioneer to post its first-ever net quarterly profit that sent its shares to a record high in after-hours trading.
“The strong tailwind we experienced in March as the Covid-19 pandemic took hold has continued to propel demand for our products,” said chief executive John Foley.
The company, which sells internet-connected exercise bikes, treadmills and subscriptions to training sessions, said revenues in the three months ending June 30 grew 172 per cent from a year ago to $607.1m.
That beat Wall Street expectations of $583m and was well beyond the $500m-$520m range it projected three months ago.
Earnings per share, at $0.27, were almost triple expectations at $0.10, while its net profit of $89.1m compared with a loss of $47.4m a year earlier.
“Fitness is moving into the home because home is a better location,” Mr Foley said. “With roughly 35m treadmills in US homes today, American consumers have said they want fitness at home. It just hasn’t worked until now.”
[Investors are] underestimating the long-term growth of Peloton as the current pandemic both steepens the adoption curve and accelerates the company’s progress along it
Paid digital subscriptions grew 210 per cent to 316,800 and subscription revenue doubled from a year ago to $121.2m — or a fifth of revenue. Gross margins on subscription revenues were high, at 56.8 per cent last quarter.
The group said it “had expected demand to moderate” but the resurgence of Covid-19 in the US helped orders, exacerbating “the imbalance of supply and demand” and causing further delays for customers trying to get new equipment.
It projected between $720m and $730m of revenue in the quarter ending September, which helped to push its shares up more than 10 per cent in after-hours trading to $97.25.
Peloton has been one of the biggest winners amid Covid-19, its stock climbing 200 per cent this year to give the company a valuation of more than $25bn.
The stock already hit a record earlier in the week after it introduced Bike Plus and Tread Plus, premium versions of its bike and treadmill equipped with bigger monitors that swivel. It also cut the price of its mainstay bike to $1,895 and launched a more affordable — albeit still $2,495 — treadmill.
Given its supply chain troubles, which have caused multi-week waiting lists, this launch was earlier than expected and caused Goldman Sachs to lift its 12-month price target on the stock from $96 to $110 — implying the stock could pedal 25 per cent higher from Thursday’s close.
Investors are “underestimating the long-term growth of Peloton as the current pandemic both steepens the adoption curve and accelerates the company’s progress along it”, Goldman analysts said on Wednesday.
Peloton finance chief Jill Woodworth said she expected rapid growth was likely to taper, but she still projected a 96 per cent revenue jump to at least $3.5bn in fiscal 2021, up from $1.8bn in the year ended June.
The company said it was ramping up production capacity to deal with delivery logjams and prepare for growth beyond Covid-19. When an analyst suggested adding capacity might be risky in case growth normalises after Covid, Mr Foley said the idea of “overbuilding supply chain capacity” has never come up in the boardroom.
“There’s such a massive opportunity that we need to invest heavily in supply chain for years and years to maintain it,” Mr Foley said. “We don’t think that it’s going [to] normalise coming out of Covid.”
Peloton is by far the largest company in the connected fitness market, but the idea has spread well beyond bikes to include rowing machines and fitness mirrors.
Tommy Duquette, co-founder of the connected boxing group FightCamp, said his company’s sales grew six to seven times during the peak lockdown period before plateauing “much higher than where it was prior to Covid”.
He, too, believes the at-home habits forming now will become permanent. A poll of 600 FightCamp subscribers found four-fifths saying they plan to work out primarily from home after the pandemic.
“There has been a clear sentiment shift that is palpable,” Mr Duquette added. “It’s all you hear when you talk to customers.”