Peloton Earnings: Post-IPO It's Pedaling Furiously, But Not Enough to Impress Investors

Less than two months after the bicycle-slash-happiness-selling company’s IPO, Peloton Interactive released its first earnings as a public company—and more than doubled its revenue from the year-ago quarter.

Investors were unimpressed, sending shares sharply lower in early trade on Tuesday.

Peloton beat consensus earnings estimates, reporting revenues of $228 million, up from $112.1 million in the year-ago period (versus estimates of $199.1 million in revenue, according to FactSet). That was the good news.

The bad news: the fitness company posted a net loss of $1.29 per share, versus estimates of a loss of 36 cents per share—which is still narrower than the $2.18 per share a year ago.

Connected fitness subscribers (defined as members with paid subscriptions) more than doubled to over 560,000 from a year ago. And while the fitness company’s first fiscal quarter earnings largely beat analyst expectations, its losses were heavier than expected.

For one, Raymond James’ Justin Patterson expected the company’s full-year year 2020 results to “be Peloton’s peak EBITDA loss year. This is because FY20E contains unique investments related to studio and HQ expansion, incremental investment in international markets, and increased focus on Tread,” Patterson wrote in a research note, referring to Peloton’s new treadmill line.

And it looks as though he’s right—Peloton estimates a full-year adjusted EBITDA loss guidance of $150 million to $170 million. Yet Patterson notes the loss is actually more favorable than Raymond James’ and the Street’s estimates, noting that Peloton’s “momentum is expected to continue into the holiday season, as evidenced by revenue and EBITD guidance for F2Q20 and FY20 that were above our/Street expectations.”

‘Gorgeous economics’

Still, Peloton executives tried to work out some rationale as to their current unprofitable state, and cash burn. “For us, profitability is a managed outcome,” CEO John Foley said on a call with analysts. “We’ve said this before—our bike business is profitable, and because of our gorgeous unit economics … it will continue to be profitable.” And, what’s more, Foley declared, “If we pull back on growth we could be profitable tomorrow.”

After all, Peloton’s Foley even told Fortune in September that the company’s plan was to “prioritize growth over profitability”—something that, in the year of massive and arguably unsuccessful IPOs, unnerves investors. The company is currently in investment mode, expanding its international footprint in Germany, focusing on Tread, and even announcing the acquisition of Tonic Fitness Technology, a Taiwan-based bike manufacturing partner to control their supply chain.

Notwithstanding the pricey capital investments, some analysts can still see Peloton pedaling toward profitability in the future. “Hardware sales and existing subscribers are helping subsidize growth investments,” Raymond James’ Patterson writes.

The exercise-equipment maker has had a rocky start as a public company. Peloton traded down a whopping 11% on its first trading day in September, as investors have increasingly grown skeptical of high valuation, unprofitable companies (think Uber, Lyft, and once upon a time, WeWork). And as yet another cash-burning, tech-ish company to come to market this year, investors have increasingly zeroed in on Peloton’s path to profitability—or lack thereof.

Nick Einhorn, vice president of research at Renaissance Capital, told Fortune in September that “in general, investors have become a little less risk-tolerant in recent months.” Einhorn said there were “some questions about the long-term prospects [of Peloton].” The company’s stock is still trading down around 15% from its first day trading in September as of Monday’s close. And shares were down an additional 6% in early trading on Tuesday.

Yet since Peloton’s debut, the stock has been met with overwhelming bullishness from the Street. In fact, according to Bloomberg data, Peloton holds a 95% consensus “buy” rating, with only a 5% “hold” recommendation at a roughly $30 price target.