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Peloton's (PTON) Stock Surge to Continue Beyond Coronavirus

Zacks Equity Research

Peloton Interactive, Inc. PTON has been a beneficiary of the current pandemic situation as the stay-at-home requirements drove demand for its fitness services and products.

Positive Earnings Estimate Revision

The stock has seen a solid activity on the earnings estimate revision front as well. These northward earnings estimate revisions suggest that analysts are growing more bullish on the stock’s earnings.

In fact, the consensus mark has been raised for both the time frames over the past 30 days weeks, suggesting that Peloton Interactive could be a lucrative choice for investors.

For the current quarter, the Zacks Consensus Estimate has moved north from a loss of 22 cents a share 30 days ago to earnings of 7 cents at present.

For the current year too, the Zacks Consensus Estimate has been revised upward, narrowing from a loss of 93 cents per share 30 days ago to a loss of 54 cents at present, suggesting an increase of 47%.  

COVID-19-Led Business Growth

Peloton Interactive, which came out with an IPO in September 2019, has seen a surge in demand for its Connected Fitness Products as well as Subscription services, its two key revenue drivers.

The shelter-in-place and work from home realities created a meaningful tailwind for Peloton and a broader ongoing consumer shift toward the home fitness experiences. This upside undeniably bodes well for the company’s business. The industry player witnessed  membership growth and increased engagement of its members on its platforms.

Notably, the company ended the March quarter with more than 886,000 Connected Fitness Subscribers (80% of the quarter’s revenues), representing 94% year-over-year growth.

Over the past year, Peloton Interactive has seen steady gains in member engagement,  driven by expanded content verticals. With so many members relegated to home due to lockdown, the March quarter saw an even larger gain than expected. The company’s Connected Fitness Subscribers logged 44.2 million workouts in the quarter, up from 18 million workouts in the same period last year, reflecting 145% year-over-year growth.

In addition, the company is witnessing growth in digital subscribers, attributed to improvements in its fitness content and features made available on its digital app. Recently, the company launched an app on Apple TV and Amazon Fire TV.

Earlier in the COVID-19 crisis, the company extended the digital subscription free trial period from 30 days to 90 days, which exceeded 1.1 million downloads of Peloton Digital in the past six weeks (since the beginning of May).

Evidently, the company delivered a strong financial performance in the first quarter with revenues growing 66% year over year to $524.6 million. With strong revenue recognition and a cushion against its fixed costs, the company achieved  its first adjusted EBITDA positive quarter as a public company in Q3 with an adjusted EBITDA margin of 4.5%.

Given the recent trends, the company is accelerating its market share gains in the $600- billion worth global fitness industry and strengthening its position as the largest and the most scale connected fitness platform in the world.

The stock sports a Zacks Rank #1 (Strong Buy) and has gained 64% in two months’ time compared with its industry’s growth of 47%. Other companies worth considering from the same space include Clarus Corporation CLAR, Callaway Golf Company ELY and American Outdoor Brands Corporation AOBC, which have rallied 11.9%, 39% and 53.6%, respectively.  You can see the complete list of today’s Zacks #1 Rank stocks here.

Stock Surge to Continue

The current environment of social distancing and work from home is permanently influencing consumer behavior,  driving more people to discover Peloton Interactive as the most engaging, entertaining, immersive, and motivating home platform for fitness and well-being.

Also, the company recently launched a new social software feature named Tag, which will enable its members to feel easily connected to others even without the help of the existing connections on Peloton Interactive.

The company is pacing at the high end of guidance or better for all its financial metrics and KPIs. But in the first week of March, we saw a spike in demand for its Bike and Tread amid the COVID-19 outbreak. The significant spurt in sales covers all our markets and that momentum continued into May as well.

In the fourth quarter, the company expects revenues of $500-$520 million, accounting for 128% year-over-year growth at the midpoint. For fiscal 2020, the company raised its revenue guidance to $1.72-$1.74 billion, reflecting 89% year-over-year growth at the midpoint compared with the previous revenue view of $1.53-$1.65 billion.

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