Peloton Earnings on Thursday: What to Watch

Peloton Interactive (PTON -0.98%) is slated to report its results for the fourth quarter and full year of fiscal 2021 (which ended on June 30) after the market close on Thursday, Aug. 26. A conference call with analysts is scheduled for the same day at 5 p.m. EDT.

Many investors will probably be approaching the report from the leader in connected home exercise with a fair dose of caution. The company faced some headwinds in the quarter, primarily related to its treadmill safety issues and recalls, and its lapping of a year-ago quarter that got a big boost from the pandemic. In other words, it has tough comparables on both the top and bottom lines. 

In 2020, Peloton stock (which had its initial public offering in September 2019) gained a whopping 434%, thanks largely to the powerful tailwind from the pandemic. The S&P 500 returned 18.4% last year.

Since hitting an all-time high in early January this year, the stock has struggled. In 2021 to date (Aug. 20), shares are down 28.8%, compared to the broader market's 19.4% return.

Here's what to look for in Peloton's upcoming report. 

Image source: Getty Images.

Key quarterly numbers

Data sources: Peloton and Yahoo! Finance. Fiscal Q4 2021 covers calendar period Q2 2021.

Management guided for quarterly revenue of $915 billion, which includes a contribution of about $60 million from Precor, the commercial-occupancy fitness company that Peloton acquired in April. Guidance also includes an anticipated $165 million negative impact from the treadmill safety issues that first exploded in the news in mid-April. On May 5, after weeks of pushing back on the U.S. Consumer Product Safety Commission's recommendation to recall its Tread+, which was involved in the death of one young child and in dozens of reported injuries, Peloton recalled both treadmill models and paused their sales. 

Sequentially, management's revenue outlook represents a 28% overall decline (and a 32% organic decline) from the fiscal third quarter.

For context, in the fiscal third quarter, Peloton's revenue surged 141% to $1.26 billion. Growth was driven by product sales jumping 140% year over year to $1.02 billion, and subscription revenue increasing 144% to $239 million. The number of connected-fitness subscribers grew 135% year over year to 2.08 million, and paid digital subscriptions soared 404% to about 891,000. Average net monthly connected-fitness churn was 0.31%.

Net loss for the fiscal third quarter narrowed 85% to $8.6 million, or $0.03 per share. That result easily beat the loss of $0.12 per share that Wall Street had expected. The company, however, burned a lot of cash in the quarter. It used $151.2 million in cash running its operations. 

Update on recalls

Management will surely give some type of update during the earnings call on the status of the two recalled treadmill models. Hopefully for investors, it provides some hard numbers, including how many consumers returned their products and the costs incurred by the company.

Management said on last quarter's earnings call that its fourth-quarter outlook was based on the assumption that about 10% of Tread and Tread+ owners will opt to participate in the recalls and obtain a full refund of their money. The guidance also includes the assumption that returns will occur more heavily early in the recall period, which runs through early November 2022.

Guidance will be more important than usual

For the fiscal first quarter of 2022 (which corresponds to the calendar third quarter of 2021), Wall Street is currently modeling for revenue to increase 40% year over year to $1.06 billion. On an adjusted basis, analysts expect the company to break even, compared to posting EPS of $0.20 in the year-ago period.

Why will guidance be even more important than usual? First, Peloton was already more than a month through the fiscal fourth quarter when it recalled its two treadmill models and paused selling them. 

Moreover, the company ended last quarter with a decent backlog (a couple of weeks for Bike and longer for Bike+). This factor should partly insulate it from whatever total effect investors are going to see on demand for its products from the broad reopening of the U.S. economy. (Of course, with the more contagious and dangerous delta variant of the coronavirus now spreading rapidly in some areas of the country, investors might have to wait longer than many previously expected to see what demand for Peloton's products will look like with little to no pandemic effect.)

Mark your calendars for Peloton's earnings release: Thursday, Aug. 26, after the market close.