Record Subscriptions Drove Peloton to Its First $1 Billion Revenue Quarter

Home workout experience provider and maker of high-end spin bikes Peloton (PTON 5.12%) just posted its first $1 billion revenue quarter. The company's popular bikes are flying off the shelves and demand is outstripping supply, causing workout enthusiasts to wait several months before receiving their equipment. On an episode of Fool Live recorded on Feb. 5, Fool contributor Brian Withers takes viewers through the highlights of the company's results and what investors should be watching. 

Brian Withers: They're actually profitable. I don't know if this is the first time that they were ever profitable, but it's certainly significant growth all around, which we'll go into details. They've had a significant problem delivering their bikes with the coronavirus demand and they've introduced the new bike, which also has significant demand. They've increased their manufacturing capacity with their outsourceD vendor in the Far East 6x, but it's still not even close to what they need. They introduced the Bike+, the Tread, and Pilates German-speaking instructors, which will help the growth in that region.

What a sessions pilot is, they have live classes, and then they have recorded, all of the classes that go live also get recorded. When you record, you can't put your stats up and things like that. What they've done is they've made a hybrid between the two is, they have a record class that starts with a specific time, and then those with the connected bikes can ride along. Everybody starts at the same time, and then you have a near-live experience in that you're getting the feedback from your stats being loaded and the other people that you're competing with, it's just that the instructor is not live. Which I think is a tremendous innovation, not necessarily innovation but a successful thing that will help them scale and deliver more personal experiences.

The Precor acquisition, they bought Precor, they make fitness equipment for commercial. A lot of the gyms that you see have Precor equipment and they have a manufacturing facility in North Carolina which about 43 minutes from here. Along with that comes a tremendous amount of manufacturing prowess, which I think was lacking, because they were outsourcing everything before. They got Beyonce, so a little bit of star power. I think you saw the highlight, you can read the highlights as I was going through it.

The Tread, I was slacking with Toby before the show and he said, "Geez, they introduce the Tread five months ago." They released it in UK as a trial period. They've gotten really good feedback, but it isn't yet available here in the US.

Let me dive into the numbers. Subs are up 134 percent year-over-year. I love to look at the quarter-over-quarter subs as well and are 25 percent. Total revenue, almost more than doubled up 40 percent quarter over quarter. Pretty nice gain. I think a lot of that has to do with getting down their backlog and delivering more bikes. Digital paid subscriptions; these are the subscriptions without the bike, grew 472 percent to about 625,000 and total members grew over 4.4 [million]. I'll explain the difference in the next slide.

These two stats are connected fitness workouts. A connected fitness workout is one that where you have the equipment, you have the Peloton treadmill or Peloton Bike, and you're paying 39 bucks per month and you're getting your stats uploaded. These are the highest dedicated users versus the digital subscription over here, which are paying like 13 bucks a month. Their total members, you have to add this 1.6 [million] plus the 625 [thousand] together, but that doesn't get you to the 4.4 [million]. The reason is this 1.6 million subscriptions, these are a family subscription. Essentially, anybody in the household can sign up as a member on your subscription and it's a 39 bucks flat [fee] covering the household because bike is there, it only makes sense.

I did a little math and it looks like there's about 2.2 members per connected fitness subscription, which says to me that there's lots of sharing going on. These quarterly workouts are rising considerably. There's a little bit of maybe concern here, dropping in the last couple quarters. Something interesting to watch.

Guidance is up 19 percent quarter-over-quarter. Going to be another double [for revenue growth]. The connected fitness, this is the churn, it's going to be stable. Revenue up, although it's only slightly up quarter-over-quarter, which could be filling the backlog potentially. They have hopes that by spring, that the backlog will be filled. This will be interesting to see. If they can actually beat this number.