77% Jump In Revenue Not Good Enough For Peloton

Shares of one of the biggest fitness crazes from the last few years, Peloton, caught a lot of flak in after-hours trading on Wednesday after the company released their Q2 earnings following the bell. At first glance, many of the numbers looked good but shares tumbled more than 10% immediately in the post-market session so investors knew something else was amiss. GAAP EPS and revenue both beat analyst expectations with the latter in particular piling on 77% in growth year on year, close to 10% more than the consensus. If that had been it and there were no other big shocks, then we’d likely be seeing Peloton stock up 11% instead of down 11% but management lowered their forward guidance and that’s what sent investors running for the door. 

They expect the current quarter’s (FYQ3) revenue to be $470 - $480 million which is very light compared to the $494 million consensus.

Investors will remember similar concerns after the company’s first earnings report last November. Even a strong beat on revenue that day that showed year on year growth of over 100% wasn’t enough to offset a dirty miss on EPS which was far deeper in the red than expected. Wall Street’s big concern revolves around how long it will take the company to get into the black. Shares came off about 8% after that release before rallying about 65% into last December. It’s clear there’s a lot of hype around this stock that can drive the price but that also works the other way and shares are well able to tumble if they’re not in form. After November’s rally, the stock fell about 30% through December then changed direction and turned up 30% for January.

Poor IPO Performances

It will be interesting to see how Wall Street reacts following Wednesday’s report which reaffirms last year’s concerns that profitability might be a little further away than initially promised. And as a stock market debutant, Peloton wouldn’t be the first to over promise and under deliver in its first couple of months on the public exchange.

We all know how the likes of Lyft (NASDAQ: LYFT), Uber (NASDAQ: UBER) and SmileDirectClub (NASDAQ: SDC) fared last year when they left the private business model behind. Companies like Endeavor and WeWork came super close to listing but cancelled at the last minute in the face of mounting scrutiny and incredulity over their valuations. Peloton has fared a bit better so far than those who made it public in the sense that their shares are currently above their IPO price, but it still hasn’t been an easy journey for investors.

Worth Sticking Around For?

When they went public last September among much hype, shares opened below their listed price and went on to fall over 20% in the following three weeks. According to Bloomberg at the time, it was the third-worst opening IPO performance for a company that had raised over $1 billion in the past decade. It feels like a stock that investors need to cross their fingers and toes on and then forget about for a while. Double and indeed triple-digit percentage growth in revenue is impressive and worth sticking around for.

Bank of America Merrill Lynch and Baird analysts came out on the bullish side following the IPO so they have a bit of weight behind them and some big names in their corner. There’s a strong uptrend in play since the end of last year that helped the stock to break through the downtrend from last year’s all-time highs. If they can hold that it will be a good tell to the market that investors are willing to give them a chance for now. They might have to pinch their nose and look away but the internal numbers bode well for future ones.