Peloton sales surge 172%, expects demand to continue into 2021

As expected, Peloton ($PTON) reported a blowout quarter in the wake of the COVID-19 pandemic.

Q4 and FY 2020 ending Connected Fitness Subscriptions grew 113% to over 1.09 million and paid Digital subscriptions grew 210% to over 316,800; total Members grew to approximately 3.1 million

Q4 total revenue grew 172% to $607.1 million; FY 2020 total revenue grew 100% to $1.8 billion

Connected Fitness Subscription Workouts grew 333% in Q4 to over 76.8 million, averaging 24.7 Monthly Workouts per Connected Fitness Subscription, versus 12.0 in the same period last year

Average Net Monthly Connected Fitness Churn was 0.52% for Q4 and 0.62% for FY 2020; Q4 12-month retention rate was 92%

Q4 Gross Profit Margin grew to 47.6%; Connected Fitness Gross Margin was 45.3%, Subscription Gross Margin was 56.8%, and Subscription Contribution Margin was 64.1%

Q4 Net Income was $89.1 million, $0.27 per diluted share; Q4 Adjusted EBITDA was $143.6 million, representing an Adjusted EBITDA Margin of 23.7%

In after-hours trading, Peloton stock has risen as high as $98.61 before falling to around $93 as of this writing. Peloton’s 52 week low was back in March at $19.71, so it has risen over 200% since its IPO.

The key for Peloton in the short term will be delivery windows, which it said it does not expect to resolve anytime soon. Simply put, they’re selling their products faster than they can make them. For me personally, their guidance for churn remaining below 1% is one of the best indicators of the health of their business.

You can view the entire investor relations report to see more detailed information.

Key Details from Earnings Call

  • Peloton Digital has become the best lead generator for selling bikes and treads.
  • FY20 average workouts per customer per month is at 24.7. FY19 was 8.9.
  • First positive net income quarter, but priorities are still in investing in their products, R&D, etc.
  • Do not expect to return delivery windows until Q2 2021.
  • Expect to save on advertising in Q1 and not resume normal advertising operations until Q2.
  • On a strength hardware product: John Foley: “We need to win strength. If you’re going to move all of your fitness into the home, strength is something else we need to win. Studios now have dedicated strength area. More programming for strength training coming. We’ve not seen anything in the market place that we’re excited about. I personally like to work out with free weights and bands.”
  • New products have similar gross margin products as previous products.
  • Lots of discussion around managing supply chain (and investing in their own production). A question related to ‘over-building’ supply chain, but management said it’s not something they’ve discussed.
  • Believes the original bike will be the largest SKU even after new product announcement
  • Have seen an uptick in reactivations during shelter in place of people who had canceled
  • The largest source of churn of ‘soft churn’ due to expired credit cards and more accidental cancelations
  • Under 35 is their fastest-growing segment
  • Households earning less than 100,000 are around 46% of sales

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