Peloton Interactive Inc. (PTON, Financial) was one of the great beneficiaries of the pandemic-induced lockdowns that began early last year. The at-home fitness company captured the market’s imagination amid widespread gym closures and disruptions of conventional exercise modalities.
However, as those disruptions have abated and life has begun to return to a semblance of pre-pandemic normality, the tailwinds that have buoyed Peloton since 2020 have begun to abate.
First quarter in focus
On Nov. 5, Peloton reported earnings for its first quarter of fiscal 2022, which ended in September. The company narrowly missed on the top line, delivering just $805.2 million in revenue compared to the analyst forecast of $810.7 million.
This resulted in a net loss of $376 million, or $1.25 per share, which was significantly worse than the analyst consensus estimate of $1.07 per share. Peloton’s first-quarter earnings print also compares rather unfavorably with the same period last year, when Peloton reported $69.3 million in net income for a $0.20 per-share profit.
Growth also slowed significantly during the quarter, with revenue rising a mere 6% year over year. In the first quarter of last year, meanwhile, Peloton reported a 250% jump in revenue from just the quarter before.
Tailwind peters out
In his review on Peloton’s latest earnings print last month, Barron’s author Connor Smith opined that the big earnings miss marked “the latest pandemic-play stock casualty this earnings season.” This view is hardly unique. In fact, it is gaining significant traction among a growing number of commentators. Analyst Rich Duprey, for example, made this very point on Dec 27:
“Workouts per subscription fell 16% sequentially to 16.6 and were off 20% from the 20.7 seen last year. While that's actually not surprising considering the amount of out-of-home exercise and entertainment opportunities now available to consumers, making indoor exercise less desirable, management was actually caught off guard by the pullback.”
Things have apparently not gotten much better in the second fiscal quarter thus far. In his letter accompanying the company’s first-quarter earnings print, CEO John Foley admitted that the current quarter got off to a slow start, and that the year ahead could prove dicey:
“We anticipated fiscal 2022 would be a very challenging year to forecast, given unusual year-ago comparisons, demand uncertainty amidst re-opening economies, and widely-reported supply chain constraints and commodity cost pressures.”
Outlook uncertain
With growth petering out amid broadening economic and social normalization, Peloton's stock has already given back all of its pandemic-driven gains, as commentator Keubiko noted on Dec. 15. Under such circumstances, I can see why analysts and investors might start to worry about the prospects for Peloton’s share price. Indeed, investors might be wise to heed these words of warning from the Wall Street Journal on Dec. 27:
“Hardly a promising indication of near-term prospects, Peloton’s stock has been trading lately on the fate of a character who used its bike on a fictional television show. If the early pandemic was about trading on stories, many of these companies seem to have lost the plot.”
Peloton has been buoyed by a hyped-up narrative. That narrative has never looked more fragile, in my assessment.
Disclosure: No positions.
