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Peloton revenue miss overshadows strong annual outlook

February 5, 2020, 11:39 PM UTC

Peloton Interactive, the maker of internet-connected exercise equipment, said sales in the current quarter would be lower than analysts’ forecasts, overshadowing strong earnings in the holiday quarter and a more optimistic forecast for sales this year.

New York-based Peloton said revenue in its fiscal third quarter would be $470 million to $480 million, missing the average projection of $494.2 million. The shares fell as much as 17% in extended trading.

The weak forecast comes after a strong second quarter that saw revenue rise 77% from a year earlier to $466.3 million. Peloton, which sells a stationary bike, a treadmill, and a subscription-based app for live and on-demand classes, reported a loss of 20 cents a share in the three months ended Dec. 31, which was better than analysts’ estimates for a loss of 33 cents. The company raised its forecast for 2020 revenue, projecting $1.53 billion to $1.55 billion, topping analysts’ projections for $1.49 billion.

It’s the second earnings report from Peloton, which floundered after its initial public offering in September as investors pushed the company to re-evaluate its expensive growth ambitions and focus on turning a profit. Recently, analysts have been more favorable toward the stock, encouraged after Peloton lowered the cost of its at-home digital fitness subscription and offered a 30-day bike home trial. Peloton also added an app for the Apple Watch that allows users to track workouts, and the ability to stream classes on Amazon’s Fire TV, moves that analysts said will help expand its user base.

The quarter ending Dec. 31 is one of the most important for Peloton, as it reflects holiday purchases and New Year’s resolutions that often have people committing to new exercise regimes. Analysts were encouraged by indications that the company was seeing strong traffic on Black Friday in November, traditionally one of the biggest shopping days of the year. Peloton got a lot of unwanted attention with a controversial ad it ran before Christmas, but the headlines wound up only increasing interest in the company and it wound up ultimately being a boon for business.

Some 149,000 new subscribers signed on during the quarter, bringing the total to 712,000. Peloton said it now anticipates 920,000 to 930,000 connected fitness subscribers this year, above its previous projection of as many as 895,000. Connected fitness subscribers are people who own a piece of Peloton hardware and pay a monthly subscription to access digital workouts.

Peloton’s ad proved beneficial, amplifying the brand and driving record search trends across markets,” Raymond James analyst Justin Patterson wrote in a note to clients before the results. “Peloton’s combination of brand, content breadth, and bricks-and-mortar presence provide a customer acquisition and retention edge.”

The first weeks of life as a public company were harsh on Peloton, as investors spurned by the market debuts of Uber Technologies and Slack Technologies punished it for privileging growth over profits. But the stock has recently surpassed its IPO price of $29 and is up more than 12% since its IPO.

“Peloton is one of our best ideas in 2020,” JPMorgan analyst Douglas Anmuth wrote in a recent note, but added that it’s “also one of the most debated stocks in our coverage universe.”

Investors have previously cited concerns about how much Peloton can grow its market given the pricey equipment it sells and increasing competition from companies like Mirror and workout apps from Nike and Aaptiv.

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