For a lot of companies, the COVID-19 pandemic has resulted in the most difficult operating environment in a long time. With businesses ordered to shut down and consumers stuck at home, sales plummeted across industries.
However, not every company has been deep in the doldrums. For instance, for Peloton Interactive Inc (NASDAQ:PTON), the pandemic actually served as a catalyst.
Peloton completed its initial public offering in September 2019. Its stock was trading mostly sideways up until March 2020. Then, the COVID-19 pandemic began sending shockwaves across the economy. But, unlike most other companies, Peloton stock started trending upwards.
Just take a look at the chart below. Over the past six months, PTON stock went from $22.00 to $84.04, marking a staggering increase of 282%.
Peloton Interactive Inc (NASDAQ:PTON) Stock Chart
Chart courtesy of StockCharts.com
And there was a very good reason behind PTON stock’s rally: Peloton is an interactive fitness platform company. It sells stationary bicycles and treadmills with large touchscreens that allow users to stream immersive, instructive-led boutique classes.
Now, just based on the description, you can probably tell why Peloton stock has been a hot commodity lately. Due to COVID-19-related shutdowns, a lot of gyms and fitness studios were closed. As a result, people who wanted to work out had to do so at home. And Peloton’s products and services were able to come to the rescue.
Indeed, the company has experienced a huge surge in demand in what was a very challenging operating environment for most other businesses.
In the fourth quarter of Peloton’s fiscal year 2020, which ended June 30, the company’s “Connected Fitness” subscriptions grew 113% year-over-year to over 1.09 million. (Source: “Q4 2020 Shareholder Letter,” Peloton Interactive Inc, September 10, 2020.)
That growth looks even more impressive when you take into account how much money each user is paying to be a Connected Fitness subscriber.
You see, Peloton defines a Connected Fitness subscription as a user who has either paid for a subscription to a Connected Fitness product or requested a “pause” to their subscription for up to three months.
In the June quarter, there were two Connected Fitness products available to customers—a $2,245 stationary bike and a $4,295 treadmill. After getting the hardware, subscribers will pay $39.00 a month for Peloton’s all-access membership.
In other words, the company not only makes money by selling quite pricey exercise equipment, but also earns a recurring revenue stream from the subscription fees. And that subscriber base is now in the millions.
At the same time, Peloton offers a $12.99-a-month digital membership that does not require a Peloton bike or treadmill. Instead, users can access Peloton’s fitness content through an app.
In the June quarter, the company’s paid digital subscriptions grew 210% year-over-year to more than 316,800.
Most recently, Peloton announced a new $2,495 “Bike+” while reducing the price of its existing bike to $1,895. The company also introduced a lower priced “Peloton Tread”—offered at $2,495—while renaming its $4,295 current treadmill “Tread+.” By offering a lower priced treadmill and reducing the price of its original bike, the company broadens the accessibility to the Peloton platform.
Peloton Interactive Inc: Achieving Profitability
Now, the most exciting part about Peloton stock is the financials.
As you’d expect, with a massive expansion in subscriber base, the company’s revenue was soaring. In the fourth fiscal quarter, Peloton generated $607.1 million in total revenue, representing a 172% increase year-over-year. This was driven by a 199% growth in Connected Fitness segment revenue and a 99% increase in subscription revenue.
Better yet, Peloton earned a net income of $89.1 million in the June quarter, a substantial improvement from a net loss of $47.4 million incurred in the year-ago period. Notably, this marked the first ever quarterly profit in the company’s history.
Peloton’s growth momentum is not expected to slow down anytime soon.
Management projects that, by the end of the company’s fiscal 2021, which would end on June 30, 2021, Peloton would have over two million Connected Fitness subscriptions.
Moreover, the company is expected to generate $3.50 billion to $3.65 billion in total revenue in fiscal 2021, which would mark a 96% year-over-year growth at the midpoint.
In the tech world, there is no shortage of fast-growing businesses, but a lot of them are still incurring losses quarter after quarter. That’s why Peloton’s ability to achieve profitability is a major milestone.
If the company can keep growing its business at a rate in line with management’s guidance, I wouldn’t be surprised to see PTON stock making another big move to the upside.