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Here's Why Peloton Interactive Stock Went Up Today

By Jon Quast – Sep 11, 2020 at 10:40AM

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Not only did the company report its first profit, but forward guidance was also better than expected.

What happened

Shares of at-home fitness company Peloton Interactive (PTON 15.03%) went up on Friday after the company reported fourth-quarter results for its fiscal 2020. Not only did Q4 results include triple-digit growth, but forward guidance also far exceeded Wall Street's expectations. At 10:30 a.m. EDT, the stock was only trading 4% higher. But it had traded 10% higher earlier in the session.

In the Q4 letter to shareholders management said, "2020 was a transformative year for Peloton." And looking at the stock price, that certainly appears to be the case. Peloton stock is up over 200% year to date.

PTON Chart

PTON data by YCharts

So what

For Q4, Peloton's revenue was up 172% year over year to $607 million. The majority of the growth came from its connected-fitness hardware segment -- sales of its stationary bike and treadmill. This segment's revenue grew 199% year over year to $486 million as stuck-at-home consumers decided to prioritize personal fitness. 

However, Peloton's hardware segment revenue could have grown even more. Right now, the company has a backlog of $230 million in Peloton Bikes alone. The company simply couldn't deliver all the Bikes because of unexpectedly high demand coupled with tricky COVID-19 logistics.

The incredible growth resulted in quarterly net income of $89 million -- a first for Peloton. Achieving profitability ahead of schedule certainly has investors excited, as does Peloton's forward guidance.

A man uses a Peloton Bike in a bedroom setting.

Image source: Peloton.

Now what

In general, Wall Street believed Peloton would report strong growth numbers for Q4. But there was debate about how sustainable its demand was going forward. However, the company gave encouraging guidance for the next fiscal year. For fiscal 2021, Peloton expects total revenue growth of 96% year over year at the midpoint and connected-fitness subscriber growth of 90% at the midpoint. 

This growth seems to be weighted toward the beginning of the year, based on Peloton's guidance for the upcoming first quarter. Total revenue growth for Q1 is expected to be 218% as the company works on addressing its outsized backlog. 

One area investors should monitor in coming quarters is customer churn. Peloton historically has incredible retention rates, and its average net monthly churn was just 0.62% in fiscal 2020. For fiscal 2021, the company is forecasting it will reach 1%. That's still pretty good, but it's moving in the wrong direction. Part of the long-term thesis of this growth stock is its ability to turn one-time hardware purchases into long-term recurring revenue. Its growing churn rate isn't reason for panic yet, but it is worth watching.

Jon Quast 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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Peloton Interactive, Inc. Stock Quote
Peloton Interactive, Inc.
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