After a great 2020, Peloton Interactive (PTON 4.79%) has had a rough year as a company and as a stock. What's in store for the exercise equipment manufacturer and media company in 2022? Analysts and investors will be paying close attention to the company's fiscal 2022 second-quarter earnings report on Feb. 8 to get some clues.
In 2020, Peloton thrived at the pandemic onset when folks were stuck at home and had limited exercise options. But that enthusiasm caused management to overestimate the sustainability of customer demand, which has waned considerably through much of 2021 and into 2022.
Investors will want to hear concrete plans for how the company is bringing down costs and getting back on track when it discusses earnings on Tuesday.
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Investors want concrete details on solutions to overinvestment
Interestingly, Peloton has already announced preliminary results for Q2. The company was under pressure as negative stories about its operations were circulating widely in business media. Investors were beginning to assume the worst. Peloton was compelled to reveal figures earlier than expected to assuage concerns and end speculation about a disastrous quarter and it issued a release on Jan. 20.
Surprisingly, Peloton's Q2 results were not terrible. Revenue is expected to be $1.14 billion, within the range of $1.1 billion and $1.2 billion that management guided for Q2. Connected fitness subscribers of 2.77 million are slightly below estimates of 2.8 million to 2.85 million.
John Foley, co-founder and CEO, said in the release:
As we discussed last quarter, we are taking significant corrective actions to improve our profitability outlook and optimize our costs across the company. This includes gross margin improvements, moving to a more variable cost structure, and identifying reductions in our operating expenses as we build a more focused Peloton moving forward. This work is still underway, and we expect to have more details to share when we report earnings on Feb. 8, 2022.
The comments are just what investors will want to hear from Peloton. It made several significant investments in anticipation of continued robust customer demand, which is now weighing on profits and cash flow. That initiative includes capacity expansion, new product lines, international expansion, and acquisitions. Instead of the broad descriptions that Foley gave above, investors are likely searching for concrete decisions. Precisely, where will management be cutting costs? Is Peloton paring back its international expansion plans? Launching the new Tread product has required significant marketing spending to supplement the release -- is Peloton reducing the spending supporting the new product?
These are just a few of the questions investors could have in mind when Foley speaks on the conference call to field inquiries from analysts. Decisiveness is going to be vital. By removing uncertainty, management can do a great deal to boost the stock price, which has been down 33% in 2022 and 85% from 52-week highs.
What this could mean for Peloton investors
Analysts on Wall Street expect Peloton to report revenue of $1.15 billion and a loss per share (EPS) of $1.28. The losses on the bottom line are a significant turnaround for a company that finally scaled enough to report three consecutive quarters of profitability in 2020.
The overinvestment in expansion has saddled Peloton with higher expenses while customer demand has leveled off. Still, it's important to remember that existing customers love Peloton's products. In its preliminary Q2 results, customer churn was reported as a minuscule 0.79%. The problems arose because management overestimated how many people would want to buy an exercise machine that could cost several thousand dollars. If it can effectively bring the company back down to the correct size, it could continue its long-run growth trajectory.
