High-end exercise equipment company Peloton (NASDAQ:PTON) delivered its first post-IPO quarterly report this week, and investors weren't all that impressed -- though they couldn't have been surprised by its lack of profits. On the plus side, revenues more than doubled year over year -- and that's clearly where management wants Wall Street to focus. In this segment of the Nov. 5 MarketFoolery podcast, host Chris Hill and MFAM Funds' Bill Barker talk about why Peloton's reliable subscription revenue and options for cutting back expenses later may justify cutting it a bit more slack, as well as why the company's share price issues have nothing to do with a "perfect storm."
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This video was recorded on Nov. 5, 2019.
Chris Hill: Peloton Interactive issued its first report as a public company. Peloton reported a loss, which I can't imagine is surprising to anyone. Their revenue, however, more than doubled year over year. Similar to Uber, that's the thing they'd like you to focus on.
Bill Barker: They would. It's, I think, an easier story to buy in terms of, "Just look at how fast we are growing right now, and look at how many things we could pull back on to create profit if that was what was most interesting to us and our board." The CEO stated and tried to sell that profitability is not something that they are focused on, as they are exploring and growing in international markets, and putting more money into R&D. If you have a subscription model like they do, you can have some reasonably reliable future revenues. It's not taking the same kind of hit some of these other things are.
But, to go back to, I think the overall point, hey, growth is good. What about profitable growth? If you can't deliver that, plenty of investors are willing to look at profitable growth stories.
Hill: I find it interesting that Peloton is investing in the ways that you mentioned, and yet, John Foley, the CEO on CNBC, this morning, said that they were contemplating doing a Super Bowl ad and they decided not to do it. I'm paraphrasing, but he said something to the effect of, "We didn't think that would go over so well in the current climate." And I thought, you know what? You're absolutely right. That's not necessarily the kind of investment I think is really going to meaningfully drive Peloton. Much better that they're making the investments that they're making.
Barker: Another thing that he said in the conference call, I think, or sometime around then, Foley described the market reaction after the IPO as, quote, "a perfect storm of being lopped into all kinds of buckets that were unfortunate and wrong." My response to that is, this is yet another misuse of "the perfect storm," [laughs] which should be thought of as kind of a one-in-100-years type of thing, rather than, "Our stock is down 20% after the IPO because we have no profits." Like, "That's just because you're comparing us to wrong things, like other unprofitable companies!" I think, if they deliver profits, they'll find the market is very receptive to their story.
Hill: I don't know John Foley, but, yeah, that's a little whiny. And to your point, a complete misuse of the phrase "perfect storm."