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Nov 5, 2019

Peloton projects 2020 revenue that tops analysts' estimates

We could be profitable tomorrow if we wanted to be: Peloton president

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Peloton Interactive Inc. gave a forecast for strong revenue growth in fiscal 2020 and reported a narrower quarterly loss than analysts estimated, assuaging some concerns that have weighed on the stock since its initial public offering in September. The shares jumped in early trading.

Sales will be US$1.45 billion to US$1.5 billion in the fiscal year, the New York-based fitness company said Tuesday in a statement. Analysts, on average, projected US$1.39 billion, according to data compiled by Bloomberg. Fiscal first-quarter revenue more than doubled to US$228 million from a year earlier, compared with analysts’ estimates of US$199.4 million.

Peloton, which sells a stationary bike and a treadmill as well as a subscription-based app for live and on-demand classes, said its quarterly loss narrowed in the first quarter to US$49.8 million, or US$1.29 a share, from US$54.5 million, or US$2.18, a year earlier. Analysts estimated a loss of US$114 million.

Peloton’s basic “connected fitness” subscription costs US$39 a month and the bikes start at about US$2,000. Like many startups that went public this year, Peloton told investors it will stay focused on growth rather than profitability. Earnings before interest, tax, depreciation and amortization aren’t expected to be positive until 2023.

Several high-profile technology stocks that have listed recently have seen their shares decline as investors’ are increasingly looking for realistic paths to profitability over a growth-at-all-costs model. Uber Technologies Inc., Lyft Inc. and Slack Technologies Inc. have all dropped at least 15 per cent since their IPOs.

After pricing shares at US$29 in September, Peloton has fallen as low as US$20.75 in the weeks since. But Wall Street has remained optimistic, with 19 of the 20 analysts covering the stock calling it a buy, according to data compiled by Bloomberg. The average price target is US$30.95, about 26 per cent above Monday’s closing price of US$24.61.The shares jumped more than seven per cent in early trading in New York.

Founded in 2012, the company describes itself as the “largest interactive fitness platform” in the world. It added 52,000 connected fitness subscribers in the first quarter to almost 563,000, slower growth than what it had experienced in the previous quarters, though the three-month period ended Sept. 30 is historical slow heading into the holiday season, the company said. Peloton, in a presentation to investors, said the fiscal second and third quarters are the strongest for revenue and subscriber growth “when we benefit from holiday sales, New Year’s resolutions and colder weather.”

Along with its a bike and a treadmill, Peloton has an app that shares its exercise programming with users who don’t own the hardware, but are willing to pay a monthly subscription fee for classes, which include yoga, meditation and strength training.

Peloton quietly acquired a Silicon Valley engineering firm, Gossamer Engineering, earlier this year to help it ramp up in-house development of products, according to people familiar with the transaction.

The company launched a 30-day in-home free trial in early September, which could help with New Year’s fitness goals looming, JPMorgan Chase analyst Doug Anmuth wrote in a recent note to investors. The company is also planning to open new studios in New York and London, and will launch a new product at the CES trade show in 2020, which could boost the stock, according to MKM analyst Rohit Kulkarni.