Will Peloton’s share price continue to accelerate after Q4 results?

Although Peloton’s [PTON] share price faced a difficult first six months on the market, the stock has since sped up.

When Peloton’s share price debuted on the market with an opening price of $27 on 26 September, it was $2 shy of its $29 IPO price —it continued to fall, closing its first day on the market down 11%.

Peloton’s share price took another hit as market panic earlier this year pushed the stock to an all-time low of $18.01 before closing at $19.51 on 12 March, down 31.3% year-to-date.

Lockdown has done something special for Peloton’s business, however. Sales of its at-home exercise bikes have surged, as consumers looked for an alternative to attending group spin classes. As a result, Peloton’s share price jumped 183.9% year-to-date to 4 September after hitting an all-time high of $91.06 on 2 September.

What impact will its fourth-quarter earnings report, due on 10 September, have on Peloton’s share price?

Peloton’s performance in 2020

The recent surge in Peloton’s share price was driven by the launch of its Health and Wellness Advisory Council, Joe Tenebruso wrote in The Motley Fool.

“Peloton's exercise machines are priced at a premium to that of its competitors. This helps to make its brand aspirational, which no doubt boosts sales,” he said. "But if Peloton is to remain a premium brand, it must remain on the cutting edge of exercise science. Peloton knows this, and investors rightly applauded its new science-focused initiative.”

“But if Peloton is to remain a premium brand, it must remain on the cutting edge of exercise science. Peloton knows this, and investors rightly applauded its new science-focused initiative” - Joe Tenebruso

When Peloton released its first-quarter earnings on 6 May, it reported a loss of $0.20 per share, missing the Zacks consensus estimate of a $0.17 loss. This was, however, a vast improvement on the same period in 2019, when the company announced losses of $1.76 per share. This may explain why Peloton’s share price did not suffer following the earnings announcement.

For revenue, the company posted total sales of $524.6m for the quarter to April, marking a growth of 66% compared to the previous year.

John Foley, CEO of Peloton, told analysts during a post-earnings call that the pandemic will change consumer exercise routines in the long term, according to CNBC. He also stated that the coronavirus has brought with it a surge in subscriptions, which in turn helped to increase revenue and is reflected in Peloton’s share price.

“Specifically, we ended the quarter with over 886,000 Connected Fitness Subscribers, representing 94% year-over-year growth,” Foley said at the earnings call. “Member count is now over 2.6 million inclusive of 176,000 Peloton Digital subscribers.”

“Specifically, we ended the quarter with over 886,000 Connected Fitness Subscribers, representing 94% year-over-year growth. Member count is now over 2.6 million inclusive of 176,000 Peloton Digital subscribers” - John Foley, CEO of Peloton

Looking ahead to Q4, analysts are projecting Peloton will post earnings of $0.10 per share. Meanwhile, the consensus estimate for revenue expects Peloton to post net sales of $566.53m.

For the full year, the Zacks consensus estimate is projecting a loss of $0.57 per share. As for revenue, analysts expect Peloton to make $1.79bn for the full year, a growth of 95.6% compared to 2019’s revenue of $915m.

Can Peloton keep up with demand?

JPMorgan analyst Doug Anmuth raised the firm’s target for Peloton’s share price from $58 to $105 on 2 September while maintaining an Overweight rating on the stock, stating that consensus estimates were “far too low”.

According to The Fly, Anmuth said in a research note that “despite the 195% rally year-to-date, he continues to like Peloton shares into earnings and believes there is ‘significant upside potential’ to consensus estimates both near and long term”.

Anmuth isn’t alone in his bullish outlook as the Zacks’ consensus for Peloton is to Buy. The consensus among 26 analysts polled by CNN Money is also to Buy. This comes from a majority of 20, with three rating the stock an Outperform, two a Hold and just one a Sell.

Among 24 analysts offering 12-month forecasts for Peloton’s share price, CNN Money reports a median target of $68, representing a 15.7% decrease on current levels through 4 September’s close.

Anmuth concluded by saying that the company's biggest challenge will be keeping up with the increased demand, with bike order-to-delivery times of around seven weeks on average. He said that while the delay is not optimal, it bodes well for ongoing demand and sustained sales strength.