Peloton to Sell 29M Shares of Stock to Raise $1B

Peloton Reports Triple Digit Increases in Q4 FY 2020 Fitness Subscriptions and Revenue

Company benefits for increased demand for at-home fitness programs during pandemic.

The demand for at-home fitness subscriptions and workouts has grown along with the pandemic, and Peloton has been one company that has benefited. Peloton’s fourth quarter financials for fiscal year 2020 bear that out with the company reporting triple-digit increases in revenue, fitness subscriptions and workouts. For the period ended June 30, 2020, total revenue was $607.1 million, a 172% increase year-over-year. CNBC reports that analysts estimated total revenue of $582.5 million. Total revenue for fiscal year 2020 was $1.8 billion, a 100% increase year-over-year. Subscription revenue was $121.2 million, a 99% increase year-over-year.

“FY 2020 was a transformative year for Peloton. We made great progress in scaling our business, from manufacturing and logistics, to member support and field operations. We launched operations in Germany, our first foreign language market, and continued to grow our footprint in the United States, Canada and the United Kingdom. By the end of FY 2020, our Peloton membership base grew to approximately 3.1 million, compared to 1.4 million members in the prior year. Fueled in part by the challenges associated with COVID-19, member engagement reached new highs with 164 million Connected Fitness Subscription workouts completed in FY 2020,” said Peloton in its shareholder letter.

Financial highlights

Other financial highlights from the shareholder’s report include the following:

  • Connected fitness subscription workouts grew 333% to more than 76.8 million, averaging 24.7 monthly workouts per connected fitness subscription, compared to 12.0 for the same period last year.
  • Paid digital fitness subscriptions grew 210% to over 316,800, and total members were 3.1 million.
  • Average net monthly connected fitness churn was 0.52% for the quarter and 0.62% for the full fiscal year 2020.
  • The fourth quarter 12-month retention rate was 92%.
  • Total operating expenses were $198.8 million.
  • Gross profit for the quarter was 47.6%, connected fitness gross margin was 45.3%, subscription gross margin was 56.8%, and subscription contribution margin was 64.1%.
  • Fourth quarter net income was $89.1 million, or $0.27 earnings per diluted share. CNBC reports that analysts estimated $0.10 earnings per diluted share.
  • At the end of the quarter, Peloton had $1.8 billion in cash and marketable securities.

The charts in Peloton’s quarterly earnings report illustrate the increase in activity better than looking at the sheer numbers.

Image from Peloton’s Q4 FY2020 shareholder report

Operational highlights

Operational highlights for the quarter include the following:

  • Peloton expanded fitness and wellness content for its fitness subscriptions with new offerings in strength, yoga, meditation, Fit Family and Dance Cardio.
  • Floor-based content like Fit Family and Dance Cardio and strength classes had the most significant growth during the year.
  • Paid Peloton digital subscriptions grew 210% when the company reduced the price to $12.99 and extended the digital free trial to 90 days during March and April.
  • The company also launched its products on four new over-the-top TV platforms: Amazon Fire TV, Android, Apple TV and Roku, making it more accessible to subscribers.
  • In June 15, the company was able to begin reopening select showrooms in the U.S., U.K. and Canada.

Peloton recently launched a new offering – Bike+. Available for $2,495, the connected fitness bike features a 24” touchscreen with a state-of-the-art sound system. The display screen rotates 360 degrees, so it can be used for bike workouts as well as strength, yoga or stretching. The company reduced the price of its current bike to $1,895, or $49 per month for 39 months), giving customers more options when choosing Peloton equipment. Peloton also introduced new treadmill for $2,495.

Image courtesy of Peloton

Q1 FY2021 guidance

The company provided the following guidance for the first quarter of fiscal year 2021 which will end September 30, 2020:

  • Connected fitness subscriptions between 1.32 million and 1.33 million, representing growth of 135%
  • Average net monthly connected fitness churn under 0.75%
  • Total revenue between $720 million and $730 million
  • Gross profit margin of approximately 41%
  • Adjusted EBITDA between $80 million and $90 million

“We entered Q1 FY 2021 with a backlog of $230 million bike deliveries in all geographies and sales continue to surpass expectations in the first two months of the quarter. While we had expected demand to moderate, the unexpected resurgence of COVID-19 cases in many states has perpetuated the imbalance of supply and demand in many geographies, causing continued elongated order-to-delivery windows for our customers,” said Peloton. “While we have significantly increased our production capacity in recent months and continue to grow our manufacturing capabilities, we do not expect to return to normalized order-to-delivery windows in the United States prior to the end of Q2 FY 2021.”

Since the company released its earnings report on September 10, stock has dropped slightly, which is surprising since the company’s performance beat analysts’ expectations. On September 9, Peloton stock was valued at $91.17 per share. As of 12:38 p.m. EDT yesterday, it had dropped to $83.50. However, it has risen significantly since its $25.76 per share value as of September 26, 2019.

Source: Google

Insider Take

Peloton’s results come as no surprise, as Americans who are sheltering in place are focusing on fitness. With most gyms closed during the first and second quarters, home workouts have become a popular alternative. While Peloton may not be affordable for everyone, their monthly payment plans are in line with the cost of a gym membership and their new, lower-priced equipment options make them more accessible. With COVID cases on the rise again, we expect Peloton to have a strong first quarter of fiscal year 2021, and so far, the company’s quarter-to-date results support that.

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