There's no question that Peloton (PTON -2.66%) has been one of the top "coronavirus stocks" of the year. The connected fitness specialist has gone from a controversial, unprofitable, and hyped-up IPO to a booming star during the pandemic. Its stock has jumped 270% so far this year, and it's easy to see why. Like Zoom Video Communications, Peloton has gone from a niche product to the mainstream during the crisis, as its offerings are perfectly suited to a time of quarantines and social distancing, giving fitness enthusiasts a way to enjoy live classes while they're safely at home.

The company's key metrics speak for themselves. Revenue in the fiscal fourth quarter, which ended June 30, jumped 172% to $607.1 million as connected fitness subscriptions increased 113% year over year to 1.09 million and digital subscriptions, or those separate from Peloton equipment, jumped 210% to 316,800. Bottom-line performance was strong too as the company posted a generally accepted accounting principles (GAAP) profit of $89.1 million, or $0.27 per share, completely reversing its $47.4 million loss from the year-ago period.

Peloton also dazzled investors with its guidance, calling for revenue in fiscal 2021 to essentially double to between $3.50 billion and $3.65 billion, while adjusted EBITDA similarly surges to $200 million to $275 million, up from $117.7 million last year.

Based on those results, it's easy to see why the stock has soared. But there are reasons to be concerned about the stock's long-term potential -- in fact, one question in particular looms over the company.

A woman working out with a Peloton in her living room.

Image source: Peloton.

What happens after the pandemic?

While Peloton and its management team deserve a lot of credit for developing its popular exercise bike and treadmill as well as the ecosystem of fitness classes to go with them, the recent boom is almost entirely fueled by the pandemic and the limitations it has imposed on exercise alternatives like traditional gyms and in-person fitness classes.

Revenue growth accelerated from 66% in the fiscal third quarter, before the bulk of the impact from COVID-19 was felt, all the way to 172% in the next quarter, and management expects to report 218% growth in the current quarter at the midpoint, showing just how much its trajectory has changed during the pandemic.

But other fortunate CEOs that have seen their companies grow in 2020 recognize that much of the growth in this period represents business that was pulled forward. For example, Netflix CEO Reed Hastings explained his own company's modest guidance for the third quarter, saying in the company's letter to shareholders, "We're expecting paid net adds will be down year-over-year in the second half as our strong first-half performance likely pulled forward some demand from the second half of the year."

Peloton isn't Netflix, of course, and it has a much bigger market to grow into than the streaming company, which already counts a majority of American households and nearly 200 million subscribers globally as customers. But the same market dynamics should eventually catch up to Peloton. You can see this in some of the company's other metrics. In the most recent quarter, monthly workouts per subscriber more than doubled to 24.7, a likely sign that Peloton users are turning to its classes more during the pandemic since there are fewer other exercise options available. Once those other options return, the loyalty to Peloton, both in the quantity of workouts and in new customer growth, is likely to fade.

One other concern

Peloton has two business segments: connected fitness, which is made up of hardware sales (its exercise bikes and treadmills), and subscriptions, which include the $39 per month subscription that Peloton equipment users must use, as well as the recently reduced $12.99 per month digital subscription, which allows anyone to enjoy Peloton workouts through its app.

Like other tech companies, Peloton's long-term goal is to monetize customers beyond the initial hardware purchase through the high-margin subscriptions to its services -- the workout classes. It's a tried-and-true business model, but the company is still very dependent on the sales of bikes and treadmills. In the fourth quarter, those hardware sales tripled, while subscription sales roughly doubled, matching the pace of subscription growth earlier in the year.

The company did lower its digital-only subscription price last December from $19.49 to $12.99 per month, which may have slowed revenue growth for that segment, but the gap between hardware and software is still telling: 80% of the company's top line and 75% of its gross profit in fiscal 2020 came from hardware. That means the company's performance is predominantly dependent on its ability to sell new bikes and treadmills. While Peloton's classes are clearly resonating with users given the growth in average workouts and the buzz around the product shows, the hardware business is likely to slide once the pandemic is over, and Americans return to their normal routines.

Peloton dropped a hint about this possibility in its guidance as management called for revenue growth of 218% in the fiscal first quarter but 96% growth for the full year, implying that the remaining three quarters would see revenue increase about 78%. That guidance may turn out to be conservative, depending on what happens with the pandemic, but management seems to understand that it will be difficult to sustain its year-over-year growth on top of the recent pandemic-fueled performance.

Propelled by skyrocketing demand, Peloton has proven to be a pandemic winner, but with a market value now north of $30 billion, investors should question the price tag once its momentum wears off -- and the pandemic ends.