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Peloton Shares Hit a Record High Today

By Daniel Miller – Updated May 7, 2020 at 12:46PM

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COVID-19 shelter-in-place orders fuel a Q3 revenue and membership surge, and management raises its guidance.

What happened

Shares of Peloton Interactive (PTON -4.18%), the largest interactive fitness platform in the world, were up 14% Thursday morning after the company beat revenue estimates and reported a surge in memberships.

So what

While the tragic COVID-19 pandemic is crippling many businesses across the globe, Peloton is uniquely positioned as a fitness platform Americans can access from home. Revenue soared 65% to $524.6 million versus the prior year, blowing away analysts' estimates of $486 million. Earnings per share checked in with a loss of $0.20, which was worse than analyst estimates of a loss of $0.17 per share.

But investors accepted that wider-than-expected loss amid a surge in memberships. Paid digital subscribers jumped 64%. The company generated $98.2 million from subscriptions during the third quarter, a substantial 92% increase from the prior year, and product sales jumped 61% to $420.2 million. Even better news for investors: The momentum seen from COVID-19 effects in the third quarter has continued into the fourth.

Woman exercising on a stationary bike

Image source: Getty Images.

"Connected Fitness Product revenue exceeded our expectations across all geographies driven by strong demand for our Bike," Peloton said in a press release. "During the last few weeks of Q3, we saw a significant increase in demand for our bike which has continued into Q4 so far." 

Now what

If those revenue and membership statistics weren't enough to prove Peloton was doing well despite COVID-19 disrupting the world as we know it, the company actually raised guidance at a time most companies won't even issue guidance. Management will have to persuade investors that this isn't a temporary spike and that there is a long-term vision for the business.

The good news is that third-quarter churn was 0.46%, the lowest level in four years, and its 12-month retention rate was a strong 93%. Furthermore, the company plans new products to take its business to a higher level, including a cheaper treadmill and a rowing machine. Time will tell if this is merely a short-term boost, but as shares jumped to an all-time intraday high Thursday, it's clear investors are buying in.

Daniel Miller has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Peloton Interactive. The Motley Fool has a disclosure policy.

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