If a Peloton Interactive (PTON -2.71%) fan is working up a sweat -- and it's not on a signature treadmill or stationary bike -- you can probably blame it on earnings season. The lead horse in the high-end home fitness market reports fresh financials this week, and it's easy to be worried. The stock has plummeted 44% since peaking in mid-January. 

Was Peloton's surge in popularity last year an isolated pandemic play or did it make the most of the "shelter-in-place" opportunity to build out a massive audience that it will continue lucratively serving for years? With gyms starting to fill up again as the vaccination process plays out, we're about to learn if Peloton was just a premium-priced fitness fad or if the stationary-cycling specialist will keep spinning its wheels toward a robust ecosystem future.

The stock also took a big hit on Wednesday after Peloton finally caved in on a recall of its treadmills as a result of safety concerns. Stationary bikes remain its bread-and-butter business -- and recalls happen -- but for a premium aspirational brand, this is also the kind of news that can sting for longer than the interruption lasts.

If you're a Peloton investor and you weren't sweating out this week's report, now would be a good time to grab a towel.

A woman looking out into the skyline of her high-rise during a Peloton bike workout.

Image source: Peloton.

Spin city

Last year was kind to Peloton. By the end of December, the company was working out 1.67 million connected fitness subscribers, a 134% increase over where it was when the calendar year began. It has seen its base of digital subscribers -- folks without Peloton gear wanting access to its catalog of virtual workouts -- grow even faster

Engagement is off the charts, with the average Peloton connected fitness subscriber clocking in with an average of just over 21 workouts a month. Peloton was growing before the pandemic but has been pedaling at a higher level now. The home-fitness specialist has come through with three consecutive quarters of triple-digit revenue growth heading into this week's important update.

Guidance in early February for the first three months of this year -- Peloton's fiscal third quarter -- was solid. It's targeting $1.1 billion in revenue, a 110% year-over-year increase. The key here is that Peloton was just five weeks into the new fiscal period when it offered up that outlook. There'll be a lot to pick out by the time Thursday afternoon rolls around, even if the company is able to stretch its winning streak to four quarters of triple-digit top-line growth.

  • Did its churn rate hold up better or worse than the 0.75% it was modeling for the period? If cancelations are starting to pick up now that we're spending more time outdoors, it will be reflected there.
  • Will its forecast of 35% in gross profit margin and $10 million in adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) hold up? If Peloton falls short, it could suggest that consumer demand is shifting toward lower-margin products or that there were some operating hiccups as the company sets up for the next new normal.
  • Will Peloton boost, reiterate, lower, or retract its guidance for all of fiscal 2021? We're basically down to one more fiscal quarter, but Peloton has made it an art to increase its goals in recent quarters. 

Anecdotally speaking, Peloton appears to be good shape. Wait times for new bike orders are down to just one to three weeks -- well below the couple of months that folks had to wait for their wheels last summer -- but Peloton has been able to beef up its production. It also closed on its $420 million acquisition of global fitness-gear manufacturer Precor last month, a move that was going to give Peloton a heartier presence in the international commercial market but also arm it with enhanced manufacturing capacity. 

The stock selling off since peaking less than four months ago suggests that expectations aren't high this week. Merely meeting expectations and holding the line on its fiscal-year guidance would've crushed the stock at its high, but that may come as a relief this time around.

There's still a lot that can go wrong if the wheels come off on Thursday, but don't dismiss the upside if Peloton offers a rosy outlook for the near future.