Peloton (Nasdaq: PTON) has been a big beneficiary of the pandemic as people were forced to workout from home. The product has been out-of-stock with typically a two to three month waiting period.
Its latest earnings report showed that demand remains strong as sales topped $1 billion in Q2. However, its earnings forecast came in weaker than expected as the company is increasing spending to beef up its supply chain and fulfill higher orders.
Inside the Numbers
Earnings per share came in at $0.18 per share which topped expectations of $0.09 per share. Revenue slightly beat at $1.06 billion vs $1.03 billion expected and 128% above last year's $466 million. Notably, this quarter's net income was $63.6 million compared to a loss of $55.4 million in the same quarter last year.
In the next quarter, Peloton projects sales of $1.1 billion, slightly above analysts' estimates of $1.09 billion. It also slightly increased full-year guidance to $4 billion from $3.9 billion and kept its earnings outlook unchanged. The company's major challenge is to beef up its supply chain to ease bottlenecks that are affecting its ability to fulfill orders.
The company is investing more than $100 million in air freight and expedited ocean freight to help accelerate deliveries. The company also increased guidance for next year but warned of near-term supply chain issues. These warnings have become common among many companies, and it seems to be partially due to high demand and partially due to COVID-inflicted supply chain issues.
The company believes that these problems will ease due to this increased spending and its pending $420 million purchase of Precor, an exercise equipment manufacturer. As of last quarter, Peloton had 1.67 million subscribers, a 134% increase from last year. It expects 2.28 million users by the end of the year. Another impressive feat is that its churn is only 0.76% which means the product has an impressive retention rate.
Stock Price Outlook
Peloton's shares climbed 6% into earnings but fell 7% following the report. Overall, shares are a little more than a 100% higher over the last six months, and it's one of the best-performing stocks of the past year. However, the company certainly has a high valuation with a $45 billion market cap. It's also possible that the company could lose users when the economy returns to normal.
So far, these valuation issues haven't mattered, and they're not likely to matter until user growth starts flagging. Currently, the stock price has been range-bound between $145 and $170. A break above these levels could lead to a sustained breakout.