Peloton held their 2021 Q1 earnings call last night with investors. As expected the company showed year over year growth. A few of the top-line stats include that subscriptions grew 137% year over year up to 1.33 million, and revenue grew 232% up to $757.9 million. Average workouts per subscriber have grown to 20.7 from 11.7 a year ago. For more raw numbers, we recommend you browse through the company’s letter to shareholder and earnings letter.
You can listen to a recording of the call here, or read a copy of the shareholder letter here. Peloton member John Bernstein (#YukonJack) listened to the call and provided a recap in his Pelofun, Craft Cocktails and More! group. Rather than us try to recap the call itself, John was kind enough to let us share his excellent post on the topic.
In keeping with the tradition that I started when Peloton went public just over a year ago, I am once again providing a summary of their earnings report from after the market close today. As always, this comes with my usual disclaimer. I am in the investment business, so this is not intended to be a recommendation to buy or sell the stock. If you are looking for that type of guidance, I would encourage you to consult with a financial professional who can take into account the specifics of your personal financial situation when making any recommendations.
I have provided a link below to the company’s earnings release, which is chock full of all the numbers you could ever want to read. Unsurprisingly, all of their growth rates – revenue, connected fitness subscribers, etc. – were through the roof and are very impressive. I will focus my comments more on things that were said during the conference call that are not covered in the release.
John Foley started the call with a noticeably more subdued tone. He basically issued an apology for the poor customer service that many people have experienced in the past few months. Most of this relates to very long lead times to get products, particularly the Bike+. He cited a variety problems: stronger demand than they anticipated, port congestion in Los Angeles, warehouse shutdowns, and at the more localized level, forest fires, and hurricanes.
He gave four ways that they are addressing the problem:
- they are increasing production;
- they are paying for expedited shipping from their plants in Taiwan to the U.S. This includes air freight, and expedited service on ships;
- scaling up their member support team;
- clearly communicating order to delivery lead times.
Other interesting tidbits:
🔹They will be releasing more details on the new Tread very soon.
🔹The new Tread will be in showrooms to view (not order) before Thanksgiving.
🔹Since the last earnings calls, they introduced Barre classes and Bike bootcamps, which have had 500,000 and 350,000 workouts, respectively. More content is in the pipeline.
🔹The original bike will still be their best-selling product in fiscal 2021. (Remember their fiscal year ends in June, so they just reported the first quarter of 2021.)
🔹The margins on the bike and bike+ are similar.
🔹They expect the new Tread to be a game changer, but that will be a fiscal 2022 story. Foley believes it will be an incredible product.
🔹It will be quarters, if not years, before they begin the certified pre-owned program. They don’t have enough inventory yet. They’ve been finding that many folks are keeping their old bike for another family member or second home, after ordering the bike+.
🔹They are indifferent about whether folks sell their bikes on the used market, or trade it in. Either way, PTON gets a new subscriber.
🔹The rate of conversion of digital subscribers to connected fitness subscribers is increasing.
🔹The recent second spike in Covid cases and the shutdown in the U.K. have both caused demand spikes for Peloton’s products.
🔹They have 105 retail stores. They believe it is an incredible platform that they plan to continue to leverage.
🔹They continue to expand their delivery infrastructure. They now have a fleet of 700 vans and 47 last mile hubs or warehouses.
🔹They issued guidance for FY 2021 Q2 and they revised their full FY 2021 guidance. With respect to the latter, all of the guidance improved with the exception of gross margins, which remained the same. Interestingly, there will be a temporary decline in gross margins next quarter because of the cost of the expedited shipping from Taiwan mentioned above.
🔹The backlog for the bike will be back to normal by the end of this calendar year. The bike+ backlog will persist for several more quarters.
In summary, PTON had another great quarter, and all indications are that this will continue. Ironically, the big order backlog gives them a pipeline that virtually ensures revenue growth expectations for the following quarter. This is a great company with a very strong future, and a very promising earnings growth engine over the long term. In the short term, it’s also a stock that is overvalued on any reasonable measure. This is not uncommon for very high growth companies, but it’s fairly extreme in this case. Generally, I think that means that this company is fundamentally solid for the long term, but the stock price will react to good and bad news with unusually high volatility. Many of you experienced this in the last few weeks. #YukonJack
Link to company earnings
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