Peloton Interactive Inc. reported sales jumped 172 percent in the fourth quarter ended June 30, easily topping expectations. EBITDA on an adjusted basis also was well ahead of forecasts.

Revenues
Q4 total revenue grew 172 percent to $607.1 million from $223.3 million. The company had guided sales in the range of $500 million to $520 million. Wall Street’s consensus estimate had been $580 million.

Connected Fitness segment revenue was $485.9 million in Q4, representing 199 percent year-over-year growth and 80 percent of total revenue. Growth of its Connected Fitness segment reflects both a significant carryover of undelivered Bikes from Q3 as well as continued strong organic demand due to the ongoing COVID-19 pandemic.

Apparel sales growth also accelerated in the quarter, reflecting improved sell-through rates and its Memorial Day and Homecoming sales events in May.

Subscription revenue grew to $121.2 million in Q4, representing 99 percent year-over-year growth and 20 percent of total revenue, driven by strong Connected Fitness Product sales and continued low Average Net Monthly Connected Fitness Churn of 0.52 percent. Its Connected Fitness Subscription base reached 1.09 million at the end of Q4, representing year-over-year growth of 113 percent. Its low churn was the result of continued high engagement with its platform and elevated subscription reactivations. As of June 30, 95 percent of its Connected Fitness Subscription base were on month-to-month plans.

Member engagement grew in Q4 with 24.7 Average Monthly Workouts per Connected Fitness Subscription versus 12.0 Workouts in the same period last year. Members with a Connected Fitness Subscription worked out with Peloton 76.8 million times, up from 17.8 million Workouts in the same period last year, representing 333 percent year-over-year growth. In addition, Peloton ended the quarter with over 316,800 paying Digital subscriptions, up 210 percent year-over-year.

Gross Profit
Gross profit in Q4 was $288.8 million representing 188 percent year-over-year growth and a 47.6 percent gross margin, an improvement of 275 basis points versus the prior-year period.

Connected Fitness segment gross profit was $220.0 million in Q4, representing 223 percent year-over-year growth. Its Connected Fitness segment gross margin was 45.3 percent, a 327 basis point increase versus last year. Compared to the year-ago period, its Connected Fitness gross profit margin benefited from a mix-shift to Bike deliveries and product cost efficiencies, partially offset by expense growth in supply chain and logistics, including expedited shipping and COVID-19-related costs.

Subscription gross profit was $68.8 million in Q4, representing 116 percent year-over-year growth. Subscription gross margin was 56.8 percent, up from 52.3 percent in the year-ago period. Subscription Contribution was $77.7 million in Q4, representing 112 percent year-over-year growth. Subscription Contribution Margin was 64.1 percent, versus the prior-year period of 60.0 percent. Year-on-year margin improvement was driven primarily by leverage against fixed content production expenses.

Operating Expenses
Total operating expense was $198.8 million in Q4 and grew 33 percent year-over-year, representing 33 percent of total revenue versus the prior-year period of 67 percent.

Sales and marketing expense was $84.2 million in Q4 and grew 8 percent year-over-year, representing 14 percent of total revenue versus the prior-year period of 35 percent. Given the robust organic demand due to COVID-19 and strong brand awareness, Peloton continued to pause the majority of its media spend through the end of the quarter. At the close of Q4, its global showroom count was 95, up from 74 in the year prior.

General and administrative expense was $86.2 million in Q4 and grew 58 percent year-over-year, representing 14 percent of total revenue versus the prior-year period of 24 percent. Year-over-year growth was driven by continued investment in its teams and systems, public company costs, legal expenses, and lease expense related to its new headquarters in New York City.

Research and development expense was $28.4 million in Q4 and grew 67 percent year-over-year, representing 5 percent of total revenue, versus the prior-year period of 8 percent. This expense growth reflects continued investments in new Connected Fitness Product development and software features.

Profitability
Net income for Q4 was $89.1 million versus a net loss of $47.4  million in the same period last year. Basic and diluted earnings per share in Q4 were $0.31 and $0.27, respectively.

Q4 Adjusted EBITDA was $143.6 million, representing an Adjusted EBITDA margin of 23.7 percent, compared to (10.6) percent in the same period last year. Peloton had predicted Adjusted EBITDA in the range of $55 million to $65 million.

In the full year, total revenue doubled to $1.83 billion from $915 million. Connected Fitness Products revenues grew to $1.46 billion from $733.9 million. Subscription sales reached  $363.7 million against $181.1 million. The net loss in the year was narrowed to $71.6 million from $195.6 million.  Adjusted EBITDA was a profit of $117.7 million against a loss of $71.3 million.

For the first quarter of 2021, the guidance calls for:

  •  1.32 million to 1.33 million ending Connected Fitness Subscriptions, growth of 135 percent at the midpoint;
  • Average Net Monthly Connected Fitness Churn under 0.75 percent;
  • $720 million to $730 million total revenue, 218 percent growth at the midpoint;
  • Gross Profit Margin of approximately 41 percent;
  •  $80 million to $90 million; and
  • Adjusted EBITDA, 11.7 percent Adjusted EBITDA Margin at the midpoint.

For the full fiscal year, the guidance calls for:

  • 2.05 million to 2.10 million ending Connected Fitness Subscriptions, growth of 90 percent at the midpoint;
  • Average Net Monthly Connected Fitness Churn under 1.00 percent;
  • $3.50 billion to $3.65 billion total revenue, 96 percent growth at the midpoint;
  • Gross Profit Margin of approximately 41 percent;
  • $200 million to $275 million Adjusted EBITDA, 6.6 percent Adjusted EBITDA Margin at the midpoint.

Photo courtesy Peloton