Peloton's Future Looks Bright
Jeeho Yu & Nikhil Gunderia
Late last week, Peloton reported better-than-expected earnings with its fiscal fourth-quarter earnings release. Revenues were $607.1 million exceeding expectations of $582.5 million while earnings per share were $0.27, beating expectations of $0.10 per share. After experiencing an impressive quarter, with sales growing 172%, Peloton management held a two hour virtual analyst day to discuss their positive outlook for the future.
Peloton’s expectation of continued success into the next quarter can be attributed to their belief that the total addressable market has grown from 14 million households at the time of their IPO to 20 million households. Market penetration has increased from 4% to 7% in that same time frame. Peloton management also acknowledges that if prices for products were sub $1000, the size of their addressable market could see more expansion.
Another sign of positivity for Peloton’s future is the opening of their Shin Ji factory in December. Since the pandemic began, products have been selling rapidly, causing the company to double its manufacturing pace. The new Shin Ji factory has the capacity to build 1.5 million units per year and could be essential in allowing Peloton to keep up with increasing consumer demand.
Expectations for future success are also based on Peloton’s diversification of their target market. According to a recent Peloton disclosure, more than 50% of bike consumers within the US have an income of less than $100,000. Similarly, over 30% of their users are under the age of 35, a proportion that has grown 5x in the past 2 years.
Despite Peloton’s recent success, however, their future in program fitness has taken met some competition. Apple announced yesterday that it would be unveiling its new Fitness+ program for Apple Watch users, a service that costs less and doesn’t require an expensive stationary bike. Almost immediately after the announcement of Apple’s fitness service, Peloton shares dropped 5%, however, recovered quickly from the initial loss.
It’s difficult to say just how successful this new service will be, especially given Apple’s lack of prowess in the field of fitness and athletic training. However, Apple has a track record of winning and outplaying competition that could take precedence over their inexperience versus Peloton’s fitness services. At the very least, we may expect Apple to slow the growth of the New-York based company.
Disclosure: At the time of publication, we have no positions in any of the securities mentioned in this article. We wrote this article ourselves, and it expresses our own opinions. We are not receiving compensation for creating this article (other than from TheStreet) and have no business relationship with any company whose stock is mentioned in this article.