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Why Peloton Interactive Stock Climbed 13% in January

By John Ballard - Feb 8, 2020 at 4:58PM

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The shares got a bounce in January before plunging to start February. What's going on?

What happened

Shares of Peloton Interactive (PTON -1.49%) gained 13.9% in value last month, according to data provided by S&P Global Market Intelligence. The maker of digitized fitness bikes is riding several consumer trends in fitness, health, and streaming subscription services.

Every Wall Street firm that covers Peloton has a buy rating on the stock. In January, analysts from Baird and Bank of America voiced their opinion on the long-term growth story for the fast-growing fitness brand. The positive sentiment seemed to lift the shares, as investors entered February expecting a strong holiday earnings report. 

Investors got what they wanted, but the outlook disappointed.

A woman exercising on a Peloton bike.

Image source: Peloton Interactive.

So what

Peloton released its fiscal second-quarter earnings report last week, and the results came in well above analysts' expectations. Connected fitness subscribers soared 96% year over year, while revenue increased by 77% to $466.3 million. Even better was that the net loss on the bottom line was narrower than expected, with the net loss coming in at $0.20 per share compared to estimates of $0.35. 

However, investors didn't like the fiscal third-quarter guidance for revenue growth to decelerate to 50% year over year. Management explained that the lower guidance is not related to a loss of momentum, but an issue with a difficult comparison with the year-ago quarter, when Peloton was fulfilling lots of orders for its treadmill. 

Still, the shares are down about 15% since the earnings report last week. 

Now what

Looking beyond the next quarter, investors should be encouraged that management raised guidance for the full year. Management now expects revenue and connected fitness subscribers to be up 68% and 81% year over year, respectively. Previously, management had called for full-year revenue to be up 61% and subscribers to be up 74%. 

The company has some things on the agenda to keep sales momentum going in the shorter term, including investing in more content and rolling out the Peloton digital app to Apple Watch and Amazon Fire TV. The recent move to lower the price for the digital subscription to $12.99 per month and introduce the 30-day home trial option seems to be broadening the appeal of Peloton's products to more customers. 

The stock will be volatile, but Peloton is adding subscribers at a furious pace and revenue growth remains robust. Peloton still looks like a promising growth stock for the long haul.

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