Peloton Shares Pop Then Drop Following Strong Earnings Release

Kareem Winters

Peloton (PTON) has been on a hot streak lately. On Thursday, after the closing bell, Peloton reported fiscal year 2020 Q4 earnings, beating consensus estimates. On the top line, revenues of $607.1 million exceeded expectations of $582.5 million. On the bottom line, adjusted earnings per share of $0.27 exceeded expectations of $0.10 per share.

Additionally, Peloton reported Q4 adjusted EBITDA of $143.6 million, representing an adjusted EBITDA margin of 23.7%. Other numbers that stood out were the company's gross margins which grew to 47.6% (+275bps YoY), positive net income which was $89.1 million and Connected Fitness subscription base growth of 113% during the quarter to over 1 million.

On the release, CEO Jill Woodworth stated “We're proud of how quickly we have achieved our profitability, but our priorities are unchanged. We will continue to invest aggressively in new product development, scaling our manufacturing capabilities, introducing new software features and adding more fitness and wellness programming in order to capitalize on what we believe is a massive global market opportunity.”

Following the release, analysts at Barclays reiterated their Overweight rating and raised their price target on shares to $111, representing a 50% increase from their previous target of $74. The bullish case is supported by the new trend in-home fitness, reflective of the coronavirus pandemic forcing many gyms to close their doors for good. The new PT of $111 is based on a 2.5x EV/revenue multiple for connected devices and a 15x EV/revenue on subscriptions on CY22 estimates.

JP Morgan is singing similar tunes, with analysts raising their target to $125 (from $105), commenting that Peloton’s compelling financial profile, upcoming international market launches, and strong unit economics as reasons the company has the "ability to achieve significant profitability over time." The $125 PT is based on 23x analyst CY21E Subscription Revenue & 12.5x CY22E Connected Fitness Gross Profit.

Looking ahead, for fiscal '21, Peloton expects adjusted EBITDA of $200 million to $275 million, representing an adjusted EBITDA margin of 6.6%. Peloton also estimates total revenue between $3.5 billion- $3.65 billion, representing 96% year-over-year growth.

Peloton stock was initially up on the release and for most of the morning session, however, has since turned negative, trading down roughly 3.0% at the time of publication.

So, do you own a Peloton or are thinking about getting one? After being stuck at home since March, personally I could use one. The $350 price cut mentioned during the call does sound a bit enticing. Share your comments below to let me know your thoughts!

Disclosure: At the time of publication, I do not hold any positions in Peloton (PTON). I wrote this article myself, and it expresses my own opinions. I am 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.

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Comments (3)
No. 1-3
G.Wells
G.Wells

Mr Winters, just looking for a little investing advice. I have a retirement fund, but I’m a little wary about investing my money. Any advice you can share???

AlexM5
AlexM5

I will be adding PTON to the watch list forsure!

Curt$
Curt$

PTON hit the 🎶POP lock and DROP it🎶 from back in the day 😭