What To Watch In Peloton's Earnings Report
Peloton (PTON) is scheduled to report the results of its third fiscal quarter after the market close on Wednesday, May 6, with a conference call scheduled for 5:00 pm EDT. What to watch for:
1. GUIDANCE: In February, Peloton forecast Q3 revenue of $470M-$480M, against estimates at that time of $494.26M, with 843,000 to 848,000 ending Connected Fitness Subscribers in Q3. The company also forecast FY20 revenue of $1.53B-$1.55B, against estimates at that time of $1.49B, and 920,000 to 930,000 ending Connected Fitness Subscribers.
SunTrust analyst Youssef Squali sees the company as a key beneficiary of shelter-in-place orders driven by the spread of COVID-19, with increased demand and accelerated adoption of in-home connected fitness equipment. Squali further cites Peloton's strong brand, market leadership, solid financial liquidity, and expanding global footprint.
2. MEMBER GROWTH: Peloton announced in late April that it had set a record for streaming class attendance, with 23,000 members participating in a single live class on Wednesday, Bloomberg's Eric Newcomer reported. Peloton also noted in its statement to Bloomberg that has more than 2M members worldwide. Peloton previously disclosed in its last quarterly earnings filing on February 6 that it had over 2 million members worldwide as of December 31, 2019. In its first time filming classes outside of its two studios after the temporary suspension of streaming live classes from its studios in New York and London, the company's head instructor streamed the class from her home, the report added.
3. PELOTON BENEFITS FROM GYM CLOSURES: Stifel analyst Scott Devitt raised the firm's price target on Peloton Interactive to $42 from $38, saying there is "clear opportunity" for accelerated adoption of home fitness products given recent gym closures and the enactment of prolonged social distancing measures in response to the COVID-19 pandemic. Further, third party data and commentary from other equipment providers indicates favorable sales trends developing in March for Peloton, added the analyst, who expects the momentum to continue even as lockdowns begin to ease. Peloton is well-positioned to provide a wide range of consumers with in-home fitness content and equipment through its core products and low-priced digital app, contended Devitt.
Wedbush analyst James Hardiman raised the firm's price target on Peloton to $40 from $35 and said investors are beginning to see the potential benefits to Peloton from the COVID-19 pandemic and associated social distancing protocols, and thinks the company could continue to see benefits long after stay-at-home orders are lifted given the "stickiness" of the company's products and services and their appeal to a consumer more conscious of viruses and germs going forward.
4. ...BUT SO DOES 'EVERYONE': BMO Capital analyst Simon Siegel downgraded Peloton Interactive to Underperform from Market Perform with an unchanged price target of $26. The analyst expects Peloton to post "strong" stay-at-home related sales in the second half of 2020. However, with the shares up 70% from recent lows, "so does everyone else," Siegel said. Further, the analyst worried that accelerating member growth will prove a pull-forward of demand, rather than an expansion of it. Peloton's current $10B enterprise value is essentially pricing in that 3M to 7M members will be willing and able to pay for its product, well above Q2's 712,000, said the analyst. Siegel also remains concerned that Peloton's lower-priced digital offering is essentially "too good" versus its "more-expensive-for-the-same-content" connected fitness subscription.
5. CITRON SEES PELOTON HEADING TO $5: On March 13, Andrew Left's Citron Research issued another short report on Peloton, claiming the shares will drop 80% in next 52 weeks. The firm has a $5 price target on the stock. Apple's (AAPL) new operating system, according to media reports, will contain Apple-produced guided workout videos from "cycling to yoga," Citron wrote, saying the workouts can integrate with iPads, Apple watch, or Apple TV. he "dream of Peloton becoming the official platform of home health will soon be a distant memory like when GoPro (GPRO) was going to be our platform for 'life logging,'" the short selling firm argued.
Disclosure: None.