Peloton Interactive (NASDAQ:PTON) will release its fourth-quarter and full-year results next week. Investors expect huge sales growth from the company — albeit much slower than growth in the fiscal third quarter. The quarter will be an interesting one. Not only is Peloton lapping some extraordinary year-ago comps, but the company will reveal how well it is faring amid a recall of its treadmills.
Ahead of the earnings report on Thursday, here’s a preview of some of the key items investors are going to want to watch.
Image source: Peloton Interactive.
Recall effect
Peloton said in early May that it was voluntarily recalling its Tread+ and Tread treadmills to address some safety concerns. In addition, the tech company stopped sales of its Tread+ as it worked on hardware modifications. Its Tread product was only a part of a limited invitation-only release, which had last closed in March.
Of course, the big question on investors’ minds is likely how much the recall is costing the company. In Peloton’s fiscal Q3 earnings call, CFO Jill Woodworth said she estimated a total cost of $165 million during fiscal Q4.
Here’s how this is expected to break down: $105 million would come from lost revenue from stopping sales of its treadmills, and $50 million from returns. Finally, Peloton expects subscription revenue to be negatively affected by $10 million as monthly access subscriptions for treadmill content are waived.
Investors should look to see if the negative financial effect was in line with these expectations or not.
Connected fitness subscriptions
One key area investors will want to check on is Peloton’s connected fitness subscriptions. During Q3, subscriptions increased 135% year over year to 2.08 million. Of these subscriptions, paid digital subscriptions soared 404% year over year to 892,000.
While investors should look for more strong growth in these metrics, it will be interesting to see if engagement improved even as fewer people were spending time at home during the quarter as the global economy opened up. In Q3, workouts per connected fitness subscription were 26, up 47% year over year. While meaningful sequential improvement is unlikely, investors should look for robust year-over-year improvement.
Guidance
Finally, investors should check on Peloton’s guidance for fiscal first-quarter revenue. Analysts expect the company to guide for revenue of $1.06 billion during the quarter. This would represent 41% growth — a deceleration from the 52% revenue growth management expects in fiscal Q4.
Peloton plans to announce its fiscal fourth-quarter and full-year results after market close on Thursday, Aug. 26.
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