Peloton (PTON) Tops Q2 Views, Shares Fall 7% on Delivery Delays Which Prompt a Downgrade

Shares of Peloton Interactive (NASDAQ: PTON) are down 7% in pre-open trading Friday despite second-quarter results that topped market estimates as Wall Street focuses on delivery delays and higher costs.

PTON reported earnings of $0.18 per share on sales of $1.06 billion. This is higher than the $0.10 per share expected on sales of $1.03 billion. The company’s connected fitness subscriptions surged 134% to 1.67 million with the paid digital subscriptions skyrocketing 472% to around 625,000.

“We continued to see robust demand for our connected fitness platform through the Holiday selling season, and Member engagement gains continue to validate our hardware, software, and content investments,” the company said in a statement.

For the current quarter, the company projects revenue of $1.1 billion with a full-year revenue now projected at $4 billion. However, the company also noted supply chain constraints that result in delivery delays.

“The ongoing COVID-19 pandemic continues to present a challenging operating landscape, and we continue to work to address long order-to-delivery timeframes. However, our

supply chain investments over the last several months are helping us better match our supply and demand going forward,” it is added in the statement.

Delivery delays are among key factors that led Raymond James analyst Aaron Kessler to downgrade the stock to “Market Perform”, with the stock price unchanged at $135.00 per share.

“We lower our rating on Peloton shares to Market Perform following 2Q results as 1) we believe risk/reward is less favorable at current levels (26x/21x our CY21/22 gross profits); 2) while demand remains strong, we believe trends could soften somewhat in 2H21 with social distancing measures likely to ease given the vaccine rollout,” the analyst said in a note sent to clients.

Still, he remains positive on Peloton’s long term outlook due to:

1) large market opportunity that is accelerating and expanding due to COVID-19;

2) Peloton pioneered the connected fitness market and investments in products, content, brand, and community provide competitive moats;

3) attractive unit economics including falling customer acquisition costs and low churn;

4) expect continued revenue momentum;

5) we expect 20% plus LT EBITDA margins through operating efficiencies and marketing leverage.

His colleague from Cowen, John Blackledge, is less pessimistic about the near-term prospects. He reiterated an “Outperform” rating and raised the price target to $177.00 per share from the old $175.00.

“PTON reported strong F2Q results with sub growth, rev, & EBITDA ahead amid ongoing demand surge, despite supply bottleneck. Sub guide was also better, with rev inline; F3Q EBITDA guide was lower, largely from NT incremental cost to alleviate bottleneck, while FY21 EBITDA was maintained. PT to $177; Maintain Outperform, shares down 8% AH, likely on lower F3Q profitability given NT incremental cost,” Blackledge commented in today’s note.

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