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Why Shares of Peloton Jumped 12.2% in May

By Neil Patel - Jun 9, 2021 at 8:56PM

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Investors now have clarity as to what the future holds.

What happened

Peloton Interactive (PTON 1.02%) shares rose 12.2% during the month of May, according to data provided by S&P Global Market Intelligence. The maker of connected-fitness equipment benefited from Q3 2021 results that beat Wall Street analysts' estimates for both the top and bottom lines, as well as positive developments regarding well-publicized supply-chain and safety issues. 

So what

For the quarter ended March 31, Peloton reported revenue of $1.26 billion and a loss per share of $0.03. The business exceeded expectations, as Wall Street was forecasting sales of $1.1 billion and a loss per share of $0.12.

Connected-fitness subscriptions rose 135% year over year and now total more than 2 million. Additionally, member churn in the quarter was an impressive 0.31%, while the 12-month retention rate stood at 92%. 

Green line going up on a stock chart.

Image source: Getty Images.

The company is still working to fix delivery delays as a result of a continued surge in demand caused by the pandemic. Although a $100 million investment (announced last quarter) in expedited shipping and the recently completed $420 million acquisition of Precor have helped bring Bike fulfillment times back to pre-pandemic levels, Bike+ shipments still face delays. 

To help fix these problems, on May 24th, Peloton announced plans to start construction this summer on its first U.S.-based factory. The $400 million facility, slated to open in 2023 and with more than 1 million square feet of manufacturing and office space, will certainly help Peloton shorten production and delivery times here in its biggest market. 

Furthermore, co-founder and CEO John Foley addressed the safety issues surrounding the Tread and Tread+ on the earnings call. Peloton recalled both products following recommendations by the Consumer Product Safety Commission (CPSC), but the company has since released a software update to prevent unauthorized use. Working to improve the hardware will be an ongoing process with the CPSC. 

Now what

The phenomenal third-quarter results demonstrate that Peloton's strong momentum has yet to fade. News about expanding manufacturing capabilities shows that the company is addressing one of its main problems from the pandemic. And an admission of fault by Foley, as well as concrete plans to fix Tread and Tread+ safety issues, gave investors just what they needed -- clarity. 

Peloton is going through its most difficult time as a public company, but shareholders can now have confidence that the business will be a better-run organization because of its recent troubles.

Neil Patel 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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