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Peloton stock dives after earnings beat expectations

Brian Sozzi
·Editor-at-Large
·3 min read
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Thank you Peloton girl holiday ad...and a new 30-day free home trial for a connected workout bike.

Peloton (PTON) announced fiscal second-quarter earnings Wednesday and it had more wins than losses, but the stock plunged more than 12% in after-hours trading.

Peloton co-founder John Foley struck an upbeat note in an interview with Yahoo Finance soon after the release. Foley said key indicators such as subscription revenue and the number of workouts are headed in the right direction. He confirmed Peloton is working on a cheaper priced treadmill, but declined to share a planned launch date.

Foley was also surprised the Street did pick up on Peloton’s improved full year profit outlook. He added Peloton continues to believe it will be profitable by 2023.

Ultimately, the quarter is likely to be supportive of the recent gains in the stock for several reasons.

  • Net sales: $466.3 million vs. $423.7 million estimates

  • Diluted EPS: loss of 20 cents vs. estimates for a loss of 34 cents

  • Fiscal Year Connected Fitness Subscriber Guidance: 920k to 930k vs. 885k to 895k previous

  • Fiscal Year Sales Guidance: $1.53 billion to $1.55 billion vs. $1.45 billion to $1.50 billion previous

Peloton’s new 30-day at-home free trial for its trademark bike spurred a 77% year-over-year improvement in sales and reduced return rates. In turn, that meant more people signing up to Peloton digital. Connected fitness subscribers surged 96% from a year ago to 712,005. Whisper numbers we saw expected Peloton to post 700,000 connected fitness subs in the quarter.

NEW YORK, NY - DECEMBER 04: An instructor is seen on the video display of a Peloton stationary bike at the fitness company's studio on Manhattan's 23rd Street on December 4, 2019 in New York City. Peloton and its model of on-demand video cycling classes has come under fire after the release of a new commercial that has been criticized by some as sexist and classist. (Photo by Scott Heins/Getty Images)
An instructor is seen on the video display of a Peloton stationary bike at the fitness company's studio on Manhattan's 23rd Street on December 4, 2019 in New York City. (Photo by Scott Heins/Getty Images)

Subscription gross profit margins surged 1,247 basis points from a year ago, as Peloton gained scale over costs due to the growth in subscriber count.

Meanwhile, closely watched metrics such as average monthly workouts per subscriber and quarterly workouts rose nicely sequentially year over year. As icing on the cake, Peloton noted its recent entry into the German market is “tracking ahead of plan.”

It wasn’t a completely clean earnings release, however.

Peloton’s adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) loss widened to $28.7 million from $14.6 million last year. For the full year, the adjusted EBITDA loss is pegged at $95 million to $115 million despite the clear momentum in the business. Previously, Peloton expected a loss of $150 million to $170 million.

But again, more wins than losses here.

Brian Sozzi is an editor-at-large and co-anchor of The First Trade at Yahoo Finance. Watch The First Trade each day here at 9:00 a.m. ET or on Verizon FIOS channel 604. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.

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