Predicting that U.S. consumers would not return to the gym anytime soon due to the pandemic, connected fitness brand Peloton smoked its quarterly earnings Wednesday (May 6), posting numbers that exceeded even the most bullish expectations.
Total revenue for the third fiscal quarter grew 66 percent to $524.6 million. Total subscribers to the company’s connected digital platform grew 94 percent to over 886,100, and paid digital subscribers grew 64 percent to over 176,600; total members grew to over 2.6 million. Those members averaged 17.7 monthly workouts per subscriber, versus 13.9 in the same period last year. Average Net Monthly Connected Fitness Churn was 0.46 percent, the company’s lowest level in four years. The 12-month retention rate was 93 percent.
“The extraordinary events taking place over the past two months have measurably expanded our market opportunity and accelerated the ongoing shift to connected fitness,” said Chief Financial Officer Jill Woodworth. “Our fiscal year 2020 profitability outlook demonstrates the strength of our financial model when scale and leverage are achieved. However, our underlying strategy is unchanged. We plan to continue to prioritize connected fitness subscriber growth and invest aggressively behind new products, software, fitness programming and international growth as we believe COVID-19 will have a long-term impact on the fitness industry with many people likely not returning soon or at all to gyms or boutique fitness locations.”
Woodworth was addressing the issue that has dogged Peloton since it became apparent that the COVID-19 lockdown had led to spikes in its equipment and digital fitness subscriptions. Wall Street analysts never doubted the strengths of its business model or results, but the question whether it was sustainable was answered in no uncertain terms on the company’s earnings call late Wednesday.
The run on Peloton equipment has led to at least a short-term supply chain problem for the company. At least partly because of that, the company has spent zero marketing dollars during the past three months. Normal delivery times between order and delivery is normally seven to nine days. The company did not commit to its current or future delivery times, but it did say that a new Taiwanese factory will come online in December, at which time the company said it believes that its tailwinds will continue to be strong.
CEO John Foley said he was in no rush to reopen the company’s 100 retail showrooms.
“We are going to be able to be a little bit more cautious because our retail folks are actually adding value from home helping out with member experience and inside sales,” he said. “But we are committed to retail. We love retail in this environment. You could actually see with some retail struggling, [that maybe] 12 months from now having even better leases, better locations and so retail has been and will continue to be an important part of our strategy in our multi-channel marketing and the efficiency of how we go to market and engage with our consumers.”
Before the company’s earnings call on Wednesday, Wedbush Securities analyst James Hardiman said he agreed that fitness enthusiasts will not be rushing back to gyms soon once the lockdown ends, according to Investor’s Business Daily.
“Fundamentally, we believe that investors are underappreciating just how unattractive gym environments are going to be for many consumers over the next 4-5 quarters,” he said in a note, according to the outlet. “There is no shortage of indications that many gym-goers are looking to buy Peloton products to stay fit during the current phase of social distancing, and given the stickiness of the offering, many buyers are likely to be enduring subscribers.”
Other companies are benefitting from the home exercise increase. Although it is not in the same connected fitness category as Peloton, Vancouver-based exercise equipment maker Nautilus experienced large sales gains, according to a first-quarter earnings report released Tuesday, according to The Columbian. Net sales in the first quarter were $93.7 million, up 11 percent from the same period last year, and retail sales were up 23.9 percent year-over-year. The company’s direct sales segment saw its first quarterly sales increase since the final quarter of 2017. Nautilus also trimmed its operating expenses by 21.4 percent by cutting back on ad spending.