Peloton held their 2020 Q3 earnings call last night with investors, which included facts like the company reaching adjusted EBITDA profitability 3 years earlier than expected, that COVID-19 has forced the company to delay new product launches and continue to pause tread delivery and sales, and the company is on track for their 6th year in a row of more than 100% subscriber growth. A note on the profitability – once Peloton resumes spend on marketing and tread deliveries it will not be unexpected for that to return to a small loss. The stock market reacted favorably to the news, with PTON stock jumping more than 15% between closing Wednesday and opening Thursday.
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! tribe. Rather than us try to recap the call itself, John was kind enough to let us share his excellent post on the topic.
As I’m sure many of you know, Peloton reported their fiscal third quarter earnings today. I just had a chance to listen to the replay of the earnings call, and read through the 10Q. I’ve made it a tradition, so far, to summarize interesting info from their earnings reports each quarter. To be clear, and since I’m in the investment business, this is not, nor is it intended to be, any type of investment recommendation. Rather it’s intended to be a summary of interesting information and trends about the company for interested and avid Peloton users. If any of you have observations or thoughts to share, please do so in the comments.
Not surprisingly, Peloton reported very strong revenue and earnings numbers. Heading into March they were already tracking at the high end of their forecasts. When the pandemic hit in early March, they saw a significant spike in bike sales. Tread sales have been suspended until they can resume in-home deliveries. The backlog of bike deliveries is high in all of their markets. They have doubled output on bike production since early March, but they still do not expect to see any improvement in the backlog during the 4th quarter.
On an adjusted EBITDA basis (a non-GAAP measure), the company was profitable this quarter. This wasn’t projected to happen until 2023. For the non-finance folks, they were profitable using an internal company metric that measures what they believe to be their normal ongoing sales and expenses, and excludes several non-cash charges.
They achieved this because of the strong demand for bikes. They were also helped by lower sales and marketing expenses. They suspended their media spend in mid March as result of the strong organic demand they’re experiencing. They measure how new purchasers heard it about Peloton, and they are reporting a strong uptick in word-of-mouth. As a result, they now expect better marketing efficiency in 2021 and beyond than they previously expected.
As a result of the strong quarter, and a continuation of those trends into April, the company has raised their fiscal year guidance on connected fitness subscribers (bike and Tread owners), revenues, and adjusted EBITDA. They expect to be profitable for the year on the last metric. Growth rates and margins were all very strong for the quarter, and churn rates are at the lowest level yet. That’s the key stuff on the financial side.
Here are some interesting facts:
- They’re building a new bike manufacturing plant in Taiwan that will come online in December.
- They acknowledged having teased about new products coming this year before the pandemic. They are now rethinking the timing on new product launches.
- The company has a significant backlog of innovation and R&D.
- 50,000 tags were created in the first week after they were introduced.
- There were 1.1 million downloads of the Peloton app during the 90-day free trial promotion.
- Warehouse and delivery employees have been receiving hazard pay since the start of the pandemic.
- They are 100% committed to the best treadmill at a lower price point. This is a massive priority. Those were John Foley’s exact words.
- They are committed to their retail strategy. At the same time, they’ve seen fantastic sales with the retail locations closed. As a result, they will be slower and more conservative about reopening to ensure safety of employees. Retail employees have been redeployed to member experience.
- Increased sales during the pandemic have shown significant growth in the cohort that is under 35 years old and with household income less than $75,000.
- They believe their market opportunity has been permanently expanded, as a result of the pandemic.
- Foley concluded the call by emphatically stating that the company has now had 6 years of triple digit growth. They are not a COVID story.