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No. of Recommendations: 65
I hold an almost 15% position in Peloton, and unlike our typical SaaS or SasS-like stocks, it’s just a completely different animal when it comes to evaluating their business and the underlying numbers they report, so I’ve had to really be diligent about documenting their results in a way that I can understand their performance.

Some of you hopefully had a chance to see my deep dive writeup on Zoom….The types of numbers and things to look at with Peloton are completely different, but I’ve tried to make sense of them from the mindset of how we think about growth SaaS stocks, so here’s my stab at it…….

Note: Peloton’s Fiscal Year ends in September, but I still am labeling the Quarter’s below in terms of calendar year

Jumping into the Income Statement, the first thing to note is that Peloton breaks up their Revenue into Connected Fitness Products and Subscriptions. I think the numbers are pretty impressive across the board. Of course Peloton was aided by the pandemic, but if their Q4 of 2019 was any indication (pre pandemic), the holiday season will provide a big number for Peloton again this next reporting cycle.

On Saul’s board we think in terms of high margin, subscription revenue though, so the QoQ subscription numbers are the ones I’m most interested in longer term for Peloton. Now matter how you slice it, I’ll take 27%, 23%, and 29% sequentially over the past 3 quarters any day of the week.

+-----------------------------------------------+---------+---------+---------+---------+---------+
| | Q319 | Q419 | Q120 | Q220 | Q320 |
+-----------------------------------------------+---------+---------+---------+---------+---------+
| Rev (Total)(in millions) | $228.00 | $466.30 | $524.60 | $607.10 | $757.90 |
+-----------------------------------------------+---------+---------+---------+---------+---------+
| Rev (Connected Fitness Products)(in millions) | $157.60 | $381.10 | $420.20 | $485.90 | $601.40 |
+-----------------------------------------------+---------+---------+---------+---------+---------+
| Rev (Subscription)(in millions) | $67.20 | $77.10 | $98.20 | $121.20 | $156.50 |
+-----------------------------------------------+---------+---------+---------+---------+---------+
| Rev Growth (YoY)(Organic)(Total) | | | | | 232.41% |
+-----------------------------------------------+---------+---------+---------+---------+---------+
| Rev Growth (QoQ)(Organic)(Total) | | 105% | 13% | 16% | 25% |
+-----------------------------------------------+---------+---------+---------+---------+---------+
| Rev Growth (YoY)(Organic)(Connected Fitness) | | | | | 281.60% |
+-----------------------------------------------+---------+---------+---------+---------+---------+
| Rev Growth (QoQ)(Organic)(Connected Fitness) | | 142% | 10% | 16% | 24% |
+-----------------------------------------------+---------+---------+---------+---------+---------+
| Rev Growth (YoY)(Organic)(Subscription) | | | | | 133% |
+-----------------------------------------------+---------+---------+---------+---------+---------+
| Rev Growth (QoQ)(Organic)(Subscription) | | 15% | 27% | 23% | 29% |
+-----------------------------------------------+---------+---------+---------+---------+---------+
| EPS (Adjusted) | -1.29 | -0.2 | -0.2 | 0.27 | 0.2 |
+-----------------------------------------------+---------+---------+---------+---------+---------+
| EBITDA (in millions) | -$21.00 | -$28.40 | $23.50 | $143.60 | $118.90 |
+-----------------------------------------------+---------+---------+---------+---------+---------+
| Shares Outstanding (Adjusted) | 38 | 279 | 280 | 331 | 342 |
+-----------------------------------------------+---------+---------+---------+---------+---------+


Looking at Expenses as a % of Revenue, Operating Margins have gone from negative to positive in an upward trend, which is encouraging. Total Cost of Revenue for the Connected Fitness Products has increased though, which is not so great. Hopefully the recent acquisition of Precor (https://www.fool.com/investing/2020/12/28/2-ways-pelotons-sm...) helps Peloton lower their costs here with a more efficient supply chain. My eyes are again on their subscription margins longer term and I’ll be paying close attention to those numbers to see if they continue to improve and become a greater part of overall revenue, pushing Gross Margins higher. Until then, the Gross Margin pressure on Peloton is a bear case for near term weakness.

+----------------------------------------------------+------+------+------+------+------+
| | Q319 | Q419 | Q120 | Q220 | Q320 |
+----------------------------------------------------+------+------+------+------+------+
| CoR (Connected Fitness Products) | 39% | 49% | 44% | 44% | 48% |
+----------------------------------------------------+------+------+------+------+------+
| CoR (Subscription) | 13% | 7% | 8% | 9% | 9% |
+----------------------------------------------------+------+------+------+------+------+
| Gross Margin (Connected Fitness Product) | 43 | 40.5 | 45.3 | 45.3 | 39% |
+----------------------------------------------------+------+------+------+------+------+
| Gross Margin (Subscription) | 56.1 | 58 | 57.8 | 56.8 | 59% |
+----------------------------------------------------+------+------+------+------+------+
| Gross Margin (Subscription Margin as % of Total GM) | 63 | 64.4 | 63.6 | 64.1 | 64% |
+----------------------------------------------------+------+------+------+------+------+
| Gross Margin (TOTAL) | 46% | 42% | 47% | 48% | 43% |
+----------------------------------------------------+------+------+------+------+------+
| | | | | | |
+----------------------------------------------------+------+------+------+------+------+
| Research and Development | 8% | 4% | 4% | 5% | 5% |
+----------------------------------------------------+------+------+------+------+------+
| Sales and Marketing | 34% | 34% | 30% | 14% | 15% |
+----------------------------------------------------+------+------+------+------+------+
| General and Administrative | 27% | 17% | 24% | 14% | 14% |
+----------------------------------------------------+------+------+------+------+------+
| Operating Margin | -22% | -13% | -11% | 15% | 9% |
+----------------------------------------------------+------+------+------+------+------+


I like Peloton’s cash position on the balance sheet, and they’re stacking up Deferred Revenue that will be recognized in the coming quarters.

+-------------------------------------------------+----------+--------+--------+----------+----------+
| | Q319 | Q419 | Q120 | Q220 | Q320 |
+-------------------------------------------------+----------+--------+--------+----------+----------+
| Cash and Cash Equivalents (in millions) | 1,375.00 | 532.80 | 509.00 | 1,035.50 | 1,430.50 |
+-------------------------------------------------+----------+--------+--------+----------+----------+
| Lease (Long Term Debt) (in millions) | 483.8 | 496.1 | 497.7 | 508.2 | 553.7 |
+-------------------------------------------------+----------+--------+--------+----------+----------+
| Deferred Revenue (Short-Term Debt)(in millions) | 99.2 | 159.6 | 215.2 | 363.6 | 521.2 |
+-------------------------------------------------+----------+--------+--------+----------+----------+
+

Peloton has also been FCF positive for 2 quarters now with Deferred Revenue becoming a factor.

+------------------------------------+---------+---------+---------+---------+---------+
| | Q319 | Q419 | Q120 | Q220 | Q320 |
+------------------------------------+---------+---------+---------+---------+---------+
| Free Cash Flow (FCF) (in millions) | -$98.70 | -$15.60 | -$60.90 | $220.00 | $262.90 |
+------------------------------------+---------+---------+---------+---------+---------+


On to the Customer Specific metrics, they started breaking out Paid Digital Subscribers from Connected Fitness Subscribers a few quarters ago. Essentially, the Connected Fitness Subscribers are the “all-access” memberships that go retail for $40/month and are for Peloton Bike/Tread owners, while Paid Digital subscriptions can be purchased for $13/month for those who don’t have a Peloton Bike/Tread, but want access to the Peloton classes and digital experience. I’ve been very pleased with the growth in these numbers, but what I’m really looking at is how much ground they can cover with those digital subscriptions where they don’t even have to sell crazy amounts of the Bike/Tread to keep their cumulative subscription growth rates up. Time will tell, but I think the Peloton brand is going to continue to get stronger and stronger and they will continue to push for ways to capture market share in the digital space.

+------------------------------------------------------+-------+-------+-------+-------+-------+
| | Q319 | Q419 | Q120 | Q220 | Q320 |
+------------------------------------------------------+-------+-------+-------+-------+-------+
| Connected Fitness Subscriptions (millions) | 0.56 | 0.71 | 0.89 | 1.09 | 1.33 |
+------------------------------------------------------+-------+-------+-------+-------+-------+
| Paid Digital Subscriptions (millions) | | | 0.18 | 0.31 | 0.51 |
+------------------------------------------------------+-------+-------+-------+-------+-------+
| Total Members(millions) | 1.6+ | 2.0+ | 2.6+ | 3.1+ | 3.6+ |
+------------------------------------------------------+-------+-------+-------+-------+-------+
| Connected Fitness Subscription WORKOUTS(millions) | 11.70 | 24.30 | 44.20 | 76.80 | 77.80 |
+------------------------------------------------------+-------+-------+-------+-------+-------+
| Churn | 0.9 | 0.74 | 0.46 | 0.52 | 0.65 |
+------------------------------------------------------+-------+-------+-------+-------+-------+
| 12-month retention rate | 94% | 93% | 93% | 92% | 92% |
+------------------------------------------------------+-------+-------+-------+-------+-------+
| | | | | | |
+------------------------------------------------------+-------+-------+-------+-------+-------+
| Connected Fitness Subscription Customer Growth (YoY) | | 97% | 93% | 114% | 138% |
+------------------------------------------------------+-------+-------+-------+-------+-------+
| Connected Fitness Subscription Customer Growth (QoQ) | | 27% | 25% | 22% | 22% |
+------------------------------------------------------+-------+-------+-------+-------+-------+
| Paid Digital Subscription Customer Growth (YoY) | | | | | |
+------------------------------------------------------+-------+-------+-------+-------+-------+
| Paid Digital Subscription Customer Growth (QoQ) | | | | 76% | 65% |
+------------------------------------------------------+-------+-------+-------+-------+-------+


Peloton guided to a cool 1 billion in revenue for next quarter, which would alone represent a 31.94% rate of growth sequentially! Again, it’s worth watching their Gross Margins and seeing how the Precor acquisition impacts that number, but this company isn’t a pure hardware play, and when I think about the future for Peloton, it's about capturing the digital subscriber space for fitness, and I believe they have the brand, the products, and the performance that is worthy of the 15% position that I hold.

+-----------------------------------------------+---------+---------+---------+---------+-----------+
| | Q419 | Q120 | Q220 | Q320 | Q420 |
+-----------------------------------------------+---------+---------+---------+---------+-----------+
| Revenue Guide (next Quarter) | $420.00 | $480.00 | $520.00 | $730.00 | $1,000.00 |
+-----------------------------------------------+---------+---------+---------+---------+-----------+
| ***Connected Fitness Subscriptions (millions) | 0.69 | 0.85 | | 1.33 | 1.63 |
+-----------------------------------------------+---------+---------+---------+---------+-----------+
| ***Churn | | | | 0.75 | 0.85 |
+-----------------------------------------------+---------+---------+---------+---------+-----------+
| ***Gross Margin | | | | 41% | 39% |
+-----------------------------------------------+---------+---------+---------+---------+-----------+
| ***EBITDA | -$65.00 | -$25.00 | $65.00 | $90.00 | $70.00 |
+-----------------------------------------------+---------+---------+---------+---------+-----------+
| Revenue Guide (next Quarter YoY, organic) | | | | | 114.45% |
+-----------------------------------------------+---------+---------+---------+---------+-----------+
| Revenue Guide (next Quarter QoQ, organic) | 84.21% | 2.94% | -0.88% | 20.24% | 31.94% |
+-----------------------------------------------+---------+---------+---------+---------+-----------+
| | | | | | |
+-----------------------------------------------+---------+---------+---------+---------+-----------+
| Revenue Beat/Miss % (Guide vs Actual) | 11.02% | 9.29% | 16.75% | 3.82% | |
+-----------------------------------------------+---------+---------+---------+---------+-----------+


Hope you all find this useful!

-Chris
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