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Here's What to Look for When Peloton Reports Q4 Results

By Parkev Tatevosian, CFA – Aug 2, 2020 at 9:00AM

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Will the stock catch a second wind with investors following its next earnings release?

As the coronavirus pandemic is creating increasing uncertainty around the world, Peloton (PTON 0.30%) is experiencing a surge in orders as states across the U.S. issued stay-at-home mandates. Thousands of gyms had to close their doors, forcing people to find other options for their workouts.

Enter Peloton with its connected fitness products that were catching on even before the pandemic -- and accelerated during the outbreak. The company is expected to report its fiscal 2020 fourth-quarter and full-year results in the coming weeks. Here are a few crucial points investors should watch closely.

A woman exercising on a Peloton machine.

Peloton's sales are surging. Image source: Getty images.

Can Peloton rise to the challenge of high expectations? 

First, investors should consider the company's revenue growth for the period (ended June 30). In its third-quarter, the company experienced a whopping 66% increase in revenue to $524.6 million. With gyms closed in many areas around the U.S. during the period, it would not be surprising if the company continued on that steep upward climb.

The company has impressed the market with the stickiness of its platform, and investors should observe average monthly workouts per subscriber for the latest period to ensure customer loyalty remains strong. Not surprisingly, its members did increase workouts substantially in the early stages of the pandemic. The average monthly workouts per subscriber grew to 17.7, an increase of 27% year over year. This figure will take the spotlight as gyms gradually reopen.

In the fiscal third quarter, Peloton generated 19% of its revenue from subscriptions, up from 16% year over year. The average workouts figure can serve as a signal of how many subscribers will stick around after the pandemic has run its course. Moreover, in the previous earnings release, the company said, "We review total workouts and average monthly workouts per connected fitness subscriber to measure engagement, which is the leading indicator of retention for our connected fitness subscribers."

Lastly, shareholders and potential investors will want to look at the adjusted earnings before interest, taxes, and depreciation (EBITDA) figure. The company has already upped its full-year guidance twice with the revenue outlook increasing from $1.48 billion to $1.73 billion (both figures representing range midpoints), while the connected fitness subscriber count jumped from about 890,000 to over one million. On the bottom line, management is expecting full-year EBITDA of $30 million to $40 million. 

What this means for investors 

The coronavirus pandemic has left its mark on the world, and for Peloton, the state mandates that shut down gyms has pushed consumers to its high-end equipment and services. Still, the challenges behind fulfilling orders and retaining subscribers remain.

However, the overall outlook for this next report is bullish. Peloton's view of its business once the COVID-19 threat is over may be the most enlightening part of management's comments.

Parkev Tatevosian 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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