We look at the results for Peloton (NASDAQ:PTON), Pinterest (NYSE:PINS), and Roku (NASDAQ:ROKU). While some numbers might've been a bit disappointing for these businesses, the thesis for each is still very much intact.

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This video was recorded on Nov. 5, 2021.

Dylan Lewis: It's Friday, November 5th, and we're talking about a bunch of tech earnings. I'm your host, Dylan Lewis and I'm joined by fool.com, eager evaluator of enterprises that exceed earnings estimates, Brian Feroldi. Brian, how's it going?

Brian Feroldi: Dylan, it's going great. We got another tech earnings season upon us and we had an avalanche of choices for this show.

Dylan Lewis: Yeah, a lot of big moves this earnings season. I think one of the things that we had talked about early in the year, Brian, was this year looking at the results that companies put up. It's going to be fascinating because we didn't know what reopening was going to look like, but we did know that a ton of growth got pulled forward in 2020. Having any sense of what direction these companies are going to be going in after that growth got pulled forward, it was like throwing dart to the board.

Brian Feroldi: Yeah, tech investors could essentially do no wrong in 2020, and there are some companies out there, many of them, as we're going to talk about, seem to do no right in 2021. To your point, all bunch of growth that should have happened in 2021 got pulled forward, and that is doing some wonky things to these companies numbers.

Dylan Lewis: Yeah, so we're going to check-in on results from Roku, Pinterest, and oh my gosh, third company. [laughs]

Brian Feroldi: Peloton.

Dylan Lewis: Peloton. I'm going to be checking results from Peloton, Pinterest, and Roku. In the Roth we're also going to be talking about with these results, especially some of the more jarring once that came out, what does this look like for the thesis for these companies? I know these are three heavily followed Fool stocks. Why don't we kick things off with Roku, Brian, a business that if folks aren't familiar with, unfortunately, they missed out on a pretty great multi-pack here recently. It's one of the leaders in streaming and really a household name because it's in your hand if you're sitting there watching anything on Netflix.

Brian Feroldi: Roku is a classic example of a company that I was just dead wrong about when it came public. My first thought with Roku is like the little dongle company that makes commodity hardware, that's going to get it's lunch eaten by Google and Amazon and Apple. Boy, was I wrong about that? This company is so much stronger than that. The headline numbers for this company continued to look extremely impressive. Revenue up 51 percent to $680 million. That was actually slightly worse than what Wall Street was expecting. But if you dig that into further a player revenue, which it gets from the hardware, that was actually down 26 percent to $97 million. Now, as investors, we should really care about player revenue because that is a extremely low margin business. They essentially give those things away. Platform revenue, which is revenue earned from advertising and connecting you to partners like Netflix and Disney Plus, that revenue was up 82 percent to $583 million. On that perspective, this company did great.

Dylan Lewis: Yeah, Brian, don't beat yourself up too bad about being wrong on Roku because I was wrong on Roku too. The story with this company when it first came public was the revenue is coming from hardware sales, and we have these platform ambitions. Tell me if you've heard that story before? It's something that we've heard, especially in the connected fitness space a lot. I was skeptical that they were going to be able to pull off that transition effectively. My gosh, have they done so? The majority of the revenue is coming from that high-margin platform segment at this point, you don't really care if they make money on the player side because the other business is so compelling.

Brian Feroldi: The player revenue is really just getting one way to get their foot in the door into Roku's network. Once they're in there, that's when the company can really go to count on monetizing them. That shift that we saw in platform revenue exploding up and flare revenue going down, that did great things for the rest of the income statement. Gross margin here expanded by 600 basis points to 53.5. Gross margin just jump around from quarter to quarter based on the dynamics between player revenue and platform revenue. But overall, a consolidated gross margin of 54 percent is pretty darn good. Gross profit year grew 69 percent to $364 million, so faster than revenue, that's that gross margin at work. Operating expenses only rose 45 percent. That was much slower than gross profit. As a result, this company's net income went up 430 percent to $68 million or 48 cents per share. That was far, far better than the seven cents that Wall Street was expecting.

Dylan Lewis: Yeah. Brian, I think if you told Roku investors a couple of years ago that these were the numbers this company will be putting up and this is the quarter, with those types of margins, they would be absolutely thrilled. This is a perfect encapsulation of the transition they've been able to make and what it does for business on its financial statements. I know that maybe some people were a little disappointed with some numbers that we saw in this result, but for the big picture on where this business has tried to go over the last couple of years, absolutely incredible.

Brian Feroldi: Financially, the company is doing great. But let's get to some of those other numbers because Wall Street is really paying attention to the number of users of Roku's platform. There, the numbers were good, just not as good as financials. The total number of active accounts, that was up 23 percent year-over-year to 56.4 million. Streaming hours was only up 21 percent. That was slower than active accounts. Still up 21 percent to 18 billion hours. The thing that saved this company on the financial side was average revenue per user. That figure was up 49 percent year-over-year to more than $40 on a trailing 12-month basis. Those numbers are good in absolute terms. But more impressive to me though, is that if you compare that to traditional TV, Nielsen said that viewership on traditional linear TV among 18-49 year-olds during this same period fell 19 percent, so the fact that streaming hours were up 21 percent shows how much share streaming is still taking.

Dylan Lewis: I think it's worth digging into some of the dynamics here too, because there are a couple of different ways that we're going to see this company grow dramatically. It's bringing more people onto the platform. It's getting more usage out of the people better on there, and then it's increasing ad load and basically having ad prices continue to go up as their proven to be effective. Those are three pretty good levers to have, Brian. Right now they're all working, I think, pretty well. There's going to be some slowdowns that happen as the platform matures a little bit. But that ad inventory in ad load thing, I think it's going to be one of the more interesting drivers for them over the next couple of quarters and years because while it is a monetize experience, I think there's probably opportunity for them to layer even more in the future.

Brian Feroldi: I think so too. If you look at what happened to the company's actual shipments of the player revenue, one problem that management did note was that their partner, some of their partners that sell TVs that have Roku built into them, they're dealing with supply issues that we're seeing across the globe, so that is a headwind for the company. The company is also seeing labor costs increase or cost increase actually create their Roku devices rather than past those costs onto consumers, the company chose to eat those costs internally. Another reason why sales and that business was much slower. But to your point, the thesis here is grow the number of users. It's definitely growing in revenue, monetize them more, and Roku is clearly doing just that.

Dylan Lewis: I'm not a shareholder of this business, but I'm a follower of this business, and I'm happy for them to eat the costs on that customer acquisition side because the long-term value of having people on platform where they're able to serve up these digital ads, it's so much more compelling. They're already at a point where they're willing to give away at costs these hardware dongles. I think it's 100 percent the right move. I do think this quarter and some of the commentary we got from management was a good reminder that we tend to think of this as the company dongles generally with this company, I think it's how a lot of people associate the hardware component of their business. But they have a very large piece of the smart TV market, Brian. That's a huge part of how they actually get introduced to a lot of their users. If there are any headwinds on the global supply chain side related to TV production, it's going to affect their user acquisition.

Brian Feroldi: Yeah, that's right. This company essentially provides the TV operating system for so many smart TV manufacturers out there. On that front, the company has just launched a brand-new version of that called Roku OS 10.5. Moreover, the company is clearly making moves to expand its presence beyond the US borders. It is expanding internationally and noted particular strength launching in Germany. It's also said that its Roku channel is flourishing with new content coming along. Again, if you just look at what the company is doing, it is clearly setting itself up for a long-term success.

Dylan Lewis: I 100 percent agree with you. I think the thesis is totally on track. Some of the forward-looking numbers that we got from the company looked pretty strong, particularly given the run that it has already been on so far.

Brian Feroldi: Revenue is expected to go up 37 percent in the fourth quarter to 893 million. A gross profit is only expected to go up 26 percent, so that's management saying that player revenue is going to exceed platform revenue. That makes sense given that it's the fourth quarter, and I'm sure they're going to sell a whole bunch of those devices out there. On the profitability side, management is only guiding with adjusted EBITDA, and that's going to be about $70 million. This company is clearly not focused on profitability right now, it's focused on growing the topline and expanding the user base. I think if you're an investor, you can't be too disappointed with those numbers.

Dylan Lewis: Brian, when we were planning out today's show and we knew we were going to be talking about these three companies, I wanted us to hit Roku before we talked about Peloton because I think laying the groundwork for what's happened with Roku so far would set us up really well to talk about the business that Peloton is now, and perhaps the business it will become in the future, because Peloton, it's very similar. It's consumer hardware business, and that's where most people associate the brand, that's true, they do make money on their hardware sales. But the long-term thesis is it's a super sticky ecosystem. Once you're in there, they've got the subscription side of their business and that's really where the money is.

Brian Feroldi: Peloton is also a hardware play with a software kicker. You can make the same argument for Roku. However, the pricing dynamics of the hardware and the software are slightly different between those two companies.

Dylan Lewis: Peloton is not quite giving it away the cost, and they're certainly not coming installed in a TV that you're maybe buying anyways. But I do think it's helpful in thinking about what this business is and perhaps what it could become. We're going to touch on some elements that play into that, some decisions that management made recently that I think show they're willing to take a little bit less on the hardware side because that opportunity on the virtual side is so much bigger. I think of the companies that we're going to talk about on the show, Brian, this is probably one of the more disappointing results. This has been generally a high-growth COVID winner stock. For the quarter, total revenue was up just over 800 million, which is only up six percent year-over-year. That is not the growth rate to a lot of people who have gotten used to this business. It was up 50 percent year-over-year in the quarter prior to this, and up over 100 percent year-over-year in earlier quarters of fiscal year 2021. This is the first results for fiscal year 2022, that we're looking at. Losses came in at around 300 million, which is the largest single-quarter loss we have seen from them. Brian, I think it's it's helpful to remember, this business was posting positive net income just a few quarters ago.

Brian Feroldi: Yeah. If you look at these numbers, it's very clear that 2020 was a boom year for this business. Makes complete sense, so many people were stuck at home, you couldn't go out and exercise, you couldn't go to the gym. Demand for their products was completely taking off. That was the thing that drove the lion share of the company's topline and still does today. When you look at what's happening today with slowdown in supply, with reopening, it makes complete sense to me that hardware sales have pulled back dramatically in growth mode and we're seeing exactly that in the numbers.

Dylan Lewis: Yeah, and it's something that is also reflected because of just the way that this business works and it's a gym alternative. We see it in some of the key business metrics that are a little bit more user-oriented as well. Connected Fitness subscriptions came in just under 2.5 million, up 1.3 million from the same quarter a year ago. Great growth there, that's pretty impressive. Connected Workouts, 120 million up year-over-year, but down sequentially for the second consecutive quarter. If you look at those numbers, Brian, on a per sub basis, they clocked in around 16.5 for the quarter, which is the lowest that figure has been in a year-and-a-half. I think what we're probably seeing a little bit, Brian, is a mix of seasonality, and also just the realities of a world that's a little bit more open than it was during the heyday [laughs] of the pandemic when this was a product that a lot of people wanted rather than going to the gym.

Brian Feroldi: What's amazing about that number is the average Peloton user use their Peloton 17 times per month during the quarter. That's a highly disappointing figure. It wasn't all that long ago that that figure was almost 30 per month on average, which meant that the average user was using it once per day. Now they're using it basically every other day. Again, makes total sense. If you were a runner or you're a biker, there are some big benefits to being on Peloton's devices, but I'm sure a whole bunch of people just wanted to go outside and exercise for the first time.

Dylan Lewis: Yeah. I think it makes sense. What I think will have to figure out this business, Brian, is like there's probably some calendar year seasonality to what we see in activity beyond just the pandemic effects that are coming in and rear in their head with this business. It wouldn't surprise me if the majority of the users that they have are based in North America, that when it's cold in North America, we probably see a little bit more usage of Peloton's as this business normalizes and the massive growth starts to have less of an effect on the way things look year-over-year and quarter-to-quarter. We'll have to see how those trends bake out. But that's one of the challenges of watching your business go from the aggressive everything up into the right growth mode to that period where it's a little bit more mature and the numbers starts to normalize a bit.

Brian Feroldi: You have to also keep in mind that earlier this year, Peloton had some PR challenges with some of its products and actually had to recall them. That is also playing on these numbers. It's hard to tease out exactly what's happening there, but I think the real thing that investors were looking at what the number was guidance.

Dylan Lewis: Yeah. Guidance was not particularly great. Management is expecting 14 percent year-over-year growth for the full-year. Through some of those recent growth numbers out there, it's going to be disappointing when you see that ramp down. The reason for it, primary drivers for that reduced forecast are really, tapering of demand related to the reopening management on that. Then said, there's a richer anticipated mix of sales up to our original bike. I know that the company has done some discounting with some of their hardware recently. In addition to, Brian, the idea that the world is more open, people have alternatives. That's something where they don't have to be in their house necessarily for their workouts. The space that they're in, I wouldn't say that Peloton has created the category of home fitness but I think they've defined it at least in the modern sense. It's a lot more crowded than it used to be even a couple of years ago.

Brian Feroldi: You are right on that front. To me one thing that has always stood out about Peloton is not that it helped to redefine this category, but people that are in the Peloton community are rabid fans of Peloton. They use the device consistently, they are huge promoters of the brands, so that will be the thing to me that drives this company's success or failure long-term. On that front, as long as we see the average number of uses per Peloton continues to remain high and importantly as long as the number of contented fitness subscriptions continue to grow, that's going to be the number that I'm paying attention to. I don't think this is a company where the top-line matters as much as [inaudible 02:45:26] is making out to be.

Dylan Lewis: I think that's 100 percent right. This business is probably a couple of quarters, maybe a couple of years away from what we're seeing with Roku right now. Where the majority of revenue for Roku's coming from that high-margin segment, the hardware stuff exists but it's really more of an acquisition vehicle for the business. Right now hardware is still the name of the game for this company, it's the majority of where the revenue is coming from. The subscription side is not small. It's 300 million for this quarter up 94 percent year-over-year, but the majority of revenue, the majority of margin contribution and impact is going to be from the hardware side of the business, and as that struggles, as the headwinds, especially some of the supply chain headwinds that also affected company like Roku, it's going to wreak some havoc on the financial suite in business.

Brian Feroldi: It certainly has especially given the dynamics of the price that we've talked about before. Most people know that Peloton devices cost a few 1,000 dollars to get in versus the subscriptions of their product cost 20-30 bucks a month, something along those lines. Those are huge. Those numbers are on different planets from each other, so this is just a hardware software business where the software is the really attractive part of this business but it's going to just take a long time for that to really become the lion's share of revenue?

Dylan Lewis: I know there's probably some shareholders out there. I know this is a full favorite stock and one that's followed by a lot of folks in the community. There are disappointed with these results. I'm particularly disappointed just with how far down the business is from recent highs that it's hit. This is I think some of the lumps that come with being in the high-growth space, having some of that growth pulled forward that we saw Brian and a little bit of being a business in transition. I think that a lot of the things that we see with this company are still on track. The success of the subscription business is there, and I think we're just waiting for it to really take over the company's financials and that can be a multi-year process.

Brian Feroldi: I think it will be a multi-year process to do. Again, you have to throw in their supply chain problems to the mix the fact that these devices, that these products are still expensive. Plus once you have a Peloton even if you love the brand or net promoter, when are you going to buy another one? That definitely takes some time. That is just a challenge of selling consumer hardware products.

Dylan Lewis: Well, third company are going to talk about has nothing to do with consumer hardware Brian, but it is a business that we've talked about. Plenty of folks I swear this is the last time we're going to talk about Pinterest for at least a couple of weeks, but after the speculation about them possibly being bought by PayPal, after that deal falling through, Brian we got the company earnings and I will say I was holding my breath a little bit just because with the acquisition talks I wasn't sure if we're going to be seeing some disappointing results. I just wanted something strong from the management team here and I think we got that.

Brian Feroldi: Definitely did. Pinterest top-line, financial numbers looked really good. Revenue was up 43 percent to 633 million that beat Wall Street's estimate by just over two million. That number was driven primarily by ARPU expansion, average revenue per user. We saw our global ARPU jump 37 percent to a dollar of 41 percent as per usual but a US is the cash cow for this business generating five dollars and 55 cents per use in the United States, but international ARPU also grew rapidly to 38 cents. On a monthly active user side, management warned us that was slowing down and we saw exactly that. Monthly average users only grew essentially one percent globally to 444 million. If you dig into that a little bit more, growth was OK. Actually it was weak internationally at four percent to 356 million. In the United States though we saw a nine percent drop in monthly active users to $89 million. Again, I think that we've seen in all three of these companies, 2020 was the year that growth was just pulled forward and 2020 year COVID reopening as a headwind.

Dylan Lewis: Much of what people were doing in 2020 was so Pinterest-friendly and Pinterest-oriented. You spended a lot of time in your house, you're probably going to seek some inspiration on how to improve it. We saw home improvement projects, designed projects, all that stuff to take off and Pinterest as a place that people turn to for that stuff. One thing, you never want to see MAUs go down. Ideally, it's just up into the right definitely. One thing I do want to add on the user trends is global mobile app MAUs continued to grow at double-digits year-over-year, and in the US the mobile app MAUs remained relatively resilient. That's what company management said when compared to the web-based MAUs. It sounds a little wonky to get into the weeds on that, but the way I interpret that Brian is we know that Pinterest gets a variety of different users. We get folks that are searching for something online and through Google SEO wind up on Pinterest page, and then we also have folks who are using the app regularly and are probably interacting with the brand a little bit more. What I read from this is some of the who are casual, less-frequent users on desktop we're the ones that left, and those MAUs are the ones that have had declined, and that there's a lot of strength with the company's mobile app. If there is a silver lining in the user trends, I think it's that. It's the people that are already very into the platform seem to be sticking around and those are higher-quality users with the company anyways.

Brian Feroldi: I think that's a good distinction that you just made there and one of the things to note about that is management did note that Google's algorithm change. It did see a reduction in its web-based traffic due to Google's algorithm changes during the quarter so that makes sense that, that would hit the mobile or the web users but obviously that doesn't impact the mobile users at all. Pinterest has a die-hard group of community that are on there all the time. They are looking for things, they are pinning things, and they are going to be the ones that are going to be shopping and driving average revenue per user higher. It is encouraging to know that, that group remains loyal and active but long-term if this company is really going to grow as we need to monthly average users globally across the board does have to grow.

Dylan Lewis: I know that there are folks within the Pinterest shareholder community that debate the merits of whether MAUs are a useful stat for Pinterest or not. I think it comes down to whether or not you think it's a social media company or something slightly different. I know Brian you have talked at times about how it reminds me more of Google than Facebook. I saw it on our Twitter Spaces run by one of our listeners max last night, and people were kicking that idea around. I'd love for you to talk a little bit about that because I think right now we're stuck in a spot where we have to look at MAUs even though I think some people don't necessarily think it's the most descriptive metric for this business.

Brian Feroldi: Well, ask yourself, why do people go to Pinterest in the first place? Is it to connect with each other and to message each other? Or is it a place that you go to search and get visual inspiration for things? Whenever I'm on [inaudible 02:52:31] , whenever my wife's on Pinterest, we go there with, "I have an idea for a kitchen, or I have an idea for a project." I don't know what it is but if I type in some words, images are going to come up and I'll say, "That's what I'm looking for." To me, that business model is so much closer to Google than it is to Facebook, so I'm on the side that says this is more of a discovery and search engine than it is a social network.

Dylan Lewis: I think we're seeing that in some of the results that we got from the company too. They highlight products searches as a category here up 100 percent. If that's the thesis, that's exactly what you want to be seeing there.

Brian Feroldi: Management is making big time investments over the last two years to really make it easy to advertise on the platform, to discover things on the platform, and to shop on the platform. On that front, advertisers are starting to take notice. Management didn't say that it's saw increased demand from large retail advertisers. That's one reason why ARPU was up so much, especially in international markets. One headwind that the company did note though, is that it's so lower demand from some consumer packaged goods companies, CPG companies. The corporate there was really supply chain disruption, inventory and labor shortages. This company is not necessarily immune to those supply challenges. But overall, my thesis for owning this stock has always been average revenue per user is going to go up. This platform is extremely monetizable. We're clearly seeing signs of just that in the financials.

Dylan Lewis: Yeah. I think that the PayPal interest and also the rumored Microsoft interest. It's two really great businesses identifying that there's some value here. The PayPal interest in particular, I think, stoked people to realize that there are some e-commerce ambitions here that are not being fully realized and looking at this company as a social media business. I think that's true. Unfortunately, I think the business needs to articulate what that vision is and needs to start executing on it before it can be a driver of really the share price over time. Until we see that, it's going to be judged on the social media e-metrics.

Brian Feroldi: Yeah. I think that's fair. Plus you have to add on all the other distractions that we've seen. What's the common theme that we saw among all three of these companies? 2020 was a tailwind. 2021 is a headwind for the business. If you look at all three of these companies on a two-year basis and that was the only data you had, you wouldn't do anything but smile and say, "Wow, these companies are growing great." To me the long-term question for all three of these companies is, what happens in 2022? The world will be reopened, vaccines will be everywhere, what happens to the long-term demand for these business? I think that the growth rates that we'll see in 2022 will give us a much better indication for what normalized growth looks like.

Dylan Lewis: Leave it to Brian Feroldi to take the long view, always doing it and I think it's good perspective. We knew going in, that this was going to be one of those years, that was just going to be a little tough in tech space, especially with a lot of companies we own. The tough part Brian, is always the living through it. If you set the Mindset ahead of time, [laughs] it makes it easier, but it's hard to see red in the portfolio. It doesn't matter how prepared you are for it.

Brian Feroldi: Yeah. The share price of all three of these companies have been all over the map. If you're looking at any of them today, they are down substantially from their high. That's a big reason why I always take the long-term view because I'm [laughs] terrible at predicting the short-term. [laughs]

Dylan Lewis: You and me both. Thankfully that's not what people turn to us for, right?

Brian Feroldi: That's right. [laughs] That's one reason why we train people to view it the long term, because that's the only way that we think we are accurate. [laughs]

Dylan Lewis: Brian, I think the takeaway here is a good one and that the thesis for all these businesses seem to be on track. It is just going to be one of those tough years and probably something that we're going to see as we look at more earnings results and even earnings results next quarter, I think the holiday season will wacky on top of [laughs] the other stuff that we've talked about. I know ad businesses have been hit a little bit too, which is all to say, folks, if you're holding some Fool-stock, especially some high-growth stocks, don't be surprised if there's a little bit craziness in the results this year and in the next couple quarters. But I don't see anything with these businesses, Brian, that says this is something that's off the rails. It's removed from where I think people are expecting this business to go.

Brian Feroldi: I've always tell people, "Focus on the business, not on the stock." The stock is going to represent sentiment of the day, but in the long term, it's the business results that are going to win out.

Dylan Lewis: Love it. Let's leave people with that, Brian. Thank you so much for joining me on today's show.

Brian Feroldi: Have a great weekend, Dylan.

Dylan Lewis: You too. Listeners that's going to do it for this episode of Industry Focus. If you have any questions you want to reach out and say, hey, shoot us an email at industryfocus@fool.com or tweet us @MFIndustryFocus. If you're looking for more of our stuff, subscribe on iTunes, Spotify, or wherever you get your podcasts. As always, people on the program may own companies discussed on the show, and The Motley Fool may have formal recommendations for or against stocks mentioned, so don't buy or sell anything based solely on what you hear. Thanks Tim Sparks for a glass today and thank you for listening. Until next time, Fool on!

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.