PTON - A critical earnings looms

I think Peloton’s FY Q4 2021 (calendar Q2) report on August 26th will be their most critical earnings report yet for several reasons.

First, they had the PR nightmare back in March of children being injured or killed by getting sucked under the Tread+ belt, and it festered for almost 2 months before they ultimately decided to provide voluntary recalls for their Tread+, waive monthly all access subscriptions to Tread and Tread+ for 3 months, and offer Tread+ owners who don’t want to send the treadmill back to have Peloton come move their treadmill to a different room if they wish. All in all they are estimating a $165 Million impact to their revenue, which they then guided to $915 Million (I’ll talk more about this later)

Second, they’ve been having supply and logistics issues that created expensive expedited shipping costs for them to try to ship Bikes from Taiwan to meet demand in the US.

Here’s what CFO Jill Wordwoth said about this on the FY Q3 conference call in May - “Last quarter, in order to reduce wait times for our products, we announced substantial incremental investments in expedited shipping of our products from Taiwan. Today, we’re pleased to report that we have made significant progress. Wait times for our original Bike are back to pre-pandemic levels of one to three weeks. Wait times for our Bike+ are also coming down and should get to the same place as Bike by the end of Q4.

However, she also noted that there’s still more pain ahead this coming quarter on the expedited shipping, and that connected fitness margins will continue to have some compression from price drops - “In the quarter, expedited shipping investments are driving year-on-year deleverage of our connected fitness product gross margin as well. The port congestion issues we have discussed on recent calls remain acute, and we are recently – we have recently allocated an additional 15 million in expedited shipping expense to our Q4 plan, in part due to the Suez Canal blockage. Based on our current forecast, we do not anticipate meaningful expedited shipping expenses in fiscal '22. Lastly, I’ll note that connected fitness margins continue to be impacted by the September 2020 price reduction of our original Bike.

Third, their acquisition of Precor closed on April 1st, so they expect $60 Million of that $915 Million FY Q4 revenue estimate to be from Precor, leaving us with $855 Million organic revenue, though it should be noted that Peloton is a notorious sandbagger, having beaten earnings by an average of 10.34% since going public.

Here’s what the CEO said on their last conference call about the Precor status - “The Precor team adds greatly to our already talented supply chain, manufacturing and R&D teams. In addition, we expect that Precor will help us significantly grow our commercial opportunity in hospitality, colleges and universities, corporate campuses, and multi-unit residential buildings….The integration process with Precor is advancing according to plan, and we look forward to offering you updates in the future as we refine our go-to-market strategy. And to be sure, we continue to expect to produce Peloton products, both bikes and treads here in the U.S. by the end of this calendar year.

So, looking ahead to the end of the calendar year and beyond, they are stating they don’t expect “meaningful” expedited shipping costs, and they will be producing Peloton products in the U.S.

Fourth, FY Q4 for Peloton is a bit tricky. It is seasonally their lowest quarter by far. In their FY Q4 of 2018 and 2019, their QoQ revenue declined 25% and 29% respectively, so don’t be fooled by the lower guidance. They didn’t have an issue in FY Q4 2020 with the pandemic raging, so they were able to accelerate 16%. However, all that said, this time around you’ve got some complicated variables at play to consider. The pandemic has mostly subsided but the Delta variant is lurking, and then you’ve got all the moving pieces I mentioned above that are actively in play for this quarter, and I haven’t even touched on their corporate wellness program or their Australia launch.

All in all, does this sound a bit too complex of a story? I’m not going to deny it. Being a Peloton investor has taken more work to analyze than the likes of our cloud favorites, maybe even significantly so, and I may end up kicking myself (like I just did with Teledoc). But, the eye of the storm for them I think is passing through right now, and both the earnings report (especially next quarter’s and FY 22 guidance) and the conference call on August 26th will be the most critical yet.

Here are a few things I’ll be looking for in the numbers beyond what I’ve mentioned above……

Although FY Q4 is seasonally light, since 2017 they’ve still always been able to accelerate their subscription revenue sequentially, including their subscription gross and contribution margins. In fact, their lowest subscription QoQ growth in 15 quarters was 10% back in calendar Q3 2019.

These numbers (calendar year) are gang busters 3+ years going:

¦ Subscription Rev (QoQ) ¦ Q1  ¦ Q2  ¦ Q3  ¦ Q4  ¦
¦ 2018                   ¦ 36% ¦ 20% ¦ 17% ¦ 18% ¦
¦ 2019                   ¦ 37% ¦ 19% ¦ 10% ¦ 15% ¦
¦ 2020                   ¦ 27% ¦ 23% ¦ 29% ¦ 24% ¦
¦ 2021                   ¦ 23% ¦     ¦     ¦     ¦

Now look at their progressive increases in subscription gross margin…

¦ Subscription Gross Margin ¦ Q1     ¦ Q2     ¦ Q3     ¦ Q4     ¦
¦ 2018                      ¦ 35.00% ¦ 51.00% ¦ 48.70% ¦ 45.50% ¦
¦ 2019                      ¦ 25.60% ¦ 52.30% ¦ 56.10% ¦ 58%    ¦
¦ 2020                      ¦ 57.80% ¦ 56.80% ¦ 59%    ¦ 60%    ¦
¦ 2021                      ¦ 65%    ¦        ¦        ¦        ¦

And then the subscription contribution as a percentage of total revenue (ie. the contribution margin)

¦ Subscription Contribution Margin ¦ Q1     ¦ Q2     ¦ Q3     ¦ Q4     ¦
¦ 2018                             ¦ 37.90% ¦ 57.10% ¦ 58.30% ¦ 54.00% ¦
¦ 2019                             ¦ 32.70% ¦ 60.00% ¦ 63.00% ¦ 64.40% ¦
¦ 2020                             ¦ 63.60% ¦ 64.10% ¦ 64%    ¦ 65%    ¦
¦ 2021                             ¦ 68%    ¦        ¦        ¦        ¦

And then their customer growth on the connected fitness subscription side…

¦ Connected Fitness Subscription Customer Growth (QoQ) ¦ Q1  ¦ Q2  ¦ Q3  ¦ Q4  ¦
¦ 2018                                                 ¦ 29% ¦ 14% ¦ 12% ¦ 29% ¦
¦ 2019                                                 ¦ 28% ¦ 11% ¦ 10% ¦ 27% ¦
¦ 2020                                                 ¦ 25% ¦ 22% ¦ 22% ¦ 26% ¦
¦ 2021                                                 ¦ 25% ¦     ¦     ¦     ¦

And finally, their paid digital subscription customer growth, which they started tracking formally in calendar Q1 2020, is up 76%, 65%, 23%, and 42% sequentially the last 4 quarters, and 406% YoY this past quarter!

There are many, many numbers to look at with Peloton, but these subscription numbers are the key reason why I’m still an investor at this point. IF they can get their supply chain issues ironed out this quarter so that their Connected Fitness Product margins stop bleeding their total gross margins, while continuing to execute on these subscription numbers, then they will continue the trajectory towards a monster company that is as much digital and subscription based as they are hardware based.

Truth be told, and I realize this is a bit OT, but I have a feeling Peloton will be similar to Tesla, in that at some point there’s going to be a breakout in the context of valuation. Like Tesla, ever since Peloton IPO’d, analysts have been trying to decide what their real comps are. For years, there was this debate whether Tesla should be valued as a car company or a technology company - until last year when the bears threw in the towel and Tesla exploded, to a point of being valued now at around an EV/S (TTM) of ~17 and EV/EBITDA ~122, certainly cheaper than our SaaS hero companies, but much more expensive than General Motors at EV/S (TTM) of ~1.2 and EV/EBITDA ~8.5.

Right now, Peloton is valued at an EV/S (TTM) of ~9, and I think there’s a similar debate happening, as to whether Peloton is a hardware company that should be valued on their market cap relative to how many bikes they’ve sold, or a tech company that has a growing digital presence and a clear subscription growth strategy.

I hope this information was valuable to you. I know Peloton is on the fringe as a Saul stock, but the revenue and subscription numbers are there if they can break through the supply chain hurdles on the hardware side. Let’s see what happens on August 26th.

Long PTON ~9%


I’m curious as to whether others on this board are Peloton owners.

I ordered my Peloton Bike + last October and received in it mid December. Previously I had a gym membership. I pay $49.95 for a monthly membership allowing me to use the video on my bike (live or on demand), or on demand classes on my phone (walking/running…) IMHO, what makes Peloton popular is its instructors. I’ve found an instructor that motivates me (I swear she’s looking at me when she says “pull your shoulders back”…). She and other instructors have Instagram accounts with millions of followers. In my mind this is a Saas stock and though yes, the Bike + was expensive, it was just a one time purchase. I, and millions of others pay $50 a month for the video. Though I haven’t been using the bike daily throughout the summer, I will once it turns to rain and snow here in the PNW. If I get tired of biking, there are so many other types of classes, new ones all the time. I think the instructor I follow does at least 4 new classes a week, so it doesn’t get boring. It’s so much easier to use the Peloton and app than to drive to the gym. I won’t be joining a gym again in the near future.


I had been trimming my PTON position to add to other positions, but still held a 6% position as of today.

I sold out entirely after earnings.

They had a tiny beat on revenue of 2.63% over top line guidance for a total of $937 Million. That’s not terrible, but what is is their guide for next quarter at $800 Million. I was very surprised and disappointed by this. Even if they beat by their average of ~10%, that would be under $900 Million and something like ~17% YoY and down ~4% QoQ, something we haven’t seen in their history yet going from FYQ4 to FYQ1.

Also, they gave full FY2022 guidance of $5.4B is around ~34% YoY (not terrible, but I was hoping for + $6B.

I still believe in the company long term, and will review the CC notes, but the evidence here is that the short term is going to be a painful deceleration next quarter before modestly re-climbing the ladder.

Looks like right now there’s a bit of a bump off the lows, but I had no hesitation in selling given the prospects of the other companies on this board.

If the story changes, I’ll still have my eye on this one down the road for all the reasons I’ve mentioned in previous posts. Best of luck to anyone who continues to hold in the near term.



I didn’t get a chance to review the results till about an hour after market close, so I quickly glanced at the news stories that summarised them for me.

I wasn’t happy with the results and saw that the after-hours drop was only 5-6%, so took advantage and sold. I don’t think we’ll get as good a price in the morning when institutions with larger positions might make some moves.

In addition to cfee’s reasons, I didn’t like them cutting the price of the Bike by 20%. That doesn’t sound like a company that is struggling to meet demand.


The more I look at the QoQ numbers, the worse it looks:

Total Revenue for the quarter dropped precipitously:

        (mil)   QoQ
1Q20	$228 	
2Q20	$466 	104.5%
3Q20	$525 	12.5%
4Q20	$607 	15.7%
1Q21	$758 	24.8%
2Q21	$1,065 	40.5%
3Q21	$1,262 	18.5%
4Q21	$937 	-25.8%

Connected Fitness Subscriptions, which arguably is where their future lies, dropped sharply after many quarters of steady growth:

        (mil)   QoQ
4Q21	2.33	12%
3Q21	2.08	25%
2Q21	1.67	26%
1Q21	1.33	22%
4Q20	1.09	23%
3Q20	0.8861	

Digital Subscriptions have stalled:

        (mil)   QoQ   
4Q21	0.874	-2%
3Q21	0.891	43%
2Q21	0.625	23%
1Q21	0.51	61%
4Q20	0.3168	79%
3Q20	0.1766	

I looked at data for more than 4 quarters in case there is any seasonality. Appreciate any feedback if I am getting this wrong but this looks horrible.



I had very similar thoughts. $800 million next quarter guidance and $5.4billion full year just isn’t great. Explanation given by management is the price reduction of roughly 20% of the bike and modest tread contribution.

These are reasonable explanations (they are seeking to address a larger total market by dropping bike cost to $1495 or $39/month financed) but the % growth slowdown is concerning, especially given the opportunity costs of other investments available to us.

CFO made it pretty clear that FY23 would be when operating leverage comes into play with their various investments to scale up. (They say they’ve reduced costs on bike by 60 cents on the dollar since they first started producing them.)

Sub growth also slowed down considerably from previous years at a guided 56% for FY22. No one was expecting triple digit subscriber growth forever, but again, slightly disappointing.

I generally like PTON and may revisit in the future given the company’s prospects in the corporate wellness space, but I’m also out for now.



My take on the quarter:

  • Soft guidance
  • Sequential revenue decline (yes seasonality but wow big drop)
  • Slowing connected fitness subscribers
  • Digital subscribers falling QoQ
  • Shrinking gross margins especially on the hardware front which was 11.6% this quarter down from 45%!
  • Total workouts trending down, average workouts down
  • Huge op cash flow burn and big drop in adj. EBITDA compared to earlier quarters

Not a lot to like and a lot of negatives. Revenue is too unpredictable (subscriptions still only make up < 30% revenue) especially on the hardware side which makes this stock more of a “hope for the best stock” every earnings call vs more predictable revenue growth that we see with most SaaS companies.

I sold the 95% of my shares after realizing how unpredictable this quarter was going to be around $120 a few weeks ago and what smidgeon I had left, I sold after seeing such abysmal results.

I was trying to model out their revenue growth based on their guidance and it looks like they will do:

Q1: $500-550 M in hardware sales with $300ish in subscription revenue assuming 22% sequential growth in subscription revenue
Q2-Q4 $1000 M in hardware sales each quarter with $400 to $600 M in subscription revenue, assuming 18-20% sequential subscription growth each quarter.

Somehow I am skeptical of the $1 B in hardware sales in Q2-Q4. It seems like a big jump from $500 M that they guided for in Q1 especially now that we are at a partial reopening. They may be lumpier than the $1 B I’m forecasting in Q2-Q4. Wouldn’t be surprised if they missed their $5.4 B guidance.