While there were those who dismissed Peloton (NASDAQ:PTON) after its big advertising kerfuffle about a year ago, the company has come to life in a big way since. The rising demand for home exercise equipment connected to the everything-from-home movement fueled impressive gains. The company's latest earnings report makes that much perfectly clear. Though even as the company released some amazing numbers, those numbers came with a few caveats about the near-term future.
Getting that Runner's High in the Results
Earnings day was a great day for Peloton by every standard. The company brought in $0.18 per share, which was actually double the consensus estimate of $0.09. The company also turned in a better-than-expected earnings report, coming in with $1.06 billion against an expected $1.03 billion. This was actually the first quarter ever that the company cleared $1 billion in revenues.
Peloton even managed to report quarterly sales growth of 128% over the same time last year, and the company also increased its outlook for the full year. Even better, the company is keeping a lot of the new buyers in the fold; the company reported 1.67 million subscribers to its streaming video fitness operations, all of whom are paying a monthly fee to access workout classes. By the end of the fiscal year, the company expects that number to increase and hit, ultimately, 2.28 million or better. Earlier estimates suggested the streaming users would top out at 2.17 million.
The Analysts are Already Running With Peloton
Peloton has been attractive to analysts for the last six months now, as our latest research reveals. While the exact ratios making up that consensus have fluctuated a bit over that time frame, they actually haven't shifted that much.
Six months ago, the company had one “sell” rating, five “hold” and 23 “buy” ratings to its credit. Three months ago, it was one “sell”, three “hold” and 21 “buy.” A month ago, things shifted to bullish as the ratios stood at one “sell,” three “hold” and 23 “buy.” Now, the only difference between today and a month ago is that there's one more “sell” rating, which shows a fairly bullish sentiment running for some time now.
The price target, meanwhile, has only increased. Six months ago it stood at $59 even. It increased to $122.72 three months ago, and a month ago, it stood at $132.44. Today, it's sitting at $141.54, and for the first time in six months, the consensus price target actually represents downside, as the share price is currently running at $146.33.
Running Out of Steam?
There's one major problem for Peloton right now: it's a victim of its own success. With the increasing desire to do just about everything from home, and the accompanying increase in demand for things like home exercise equipment and streaming video classes, people are buying a lot more of these things.
Peloton, meanwhile, seemed to be caught by surprise that its hardware would be this popular, and has already issued warnings accordingly that it will not be able to meet demand. To its credit, the company is already firing up new programs that it plans to put a good slug of cash behind—which means a set of massive expenses coming up—but those programs will take time to spin up to speed, and that means missed opportunities in the meantime.
No part of that is good news for Peloton. Not only is it getting ready to spend huge money to capture a market that may already be considering alternatives as we speak, but it's also going to incur opportunity costs—the odd kind of expenses that come when you could have made a sale, but did not, as you weren't able to meet the terms—in doing so.
It would be easy here to wonder if Peloton's about to put a big slug of money into capturing a market that may not be anywhere near so robust going forward; with competitors like Planet Fitness (NYSE:PLNT) reopening throughout the country, the need to have home exercise equipment will inevitably drop. Throw in a growing move toward coronavirus vaccines and treatment options like Gilead Sciences' (NASDAQ:GILD) remdesivir and the height of everything-from-home may be slipping.
Still, the more Peloton can do to meet its demand, the better, especially in the near term. The opportunity cost losses are easily the most galling, since these are sales that could have been made if it just had something to sell. The iron is very clearly hot, so striking now will likely be Peloton's best move.
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