Peloton Earnings: 2 tough questions analysts should ask management on Thursday
Interactive Platoon (NASDAQ: PTON) is expected to release its results for the fourth quarter and full year of fiscal 2021 (which ended June 30) after market close on Thursday August 26. A conference call with analysts is scheduled for the same day at 5 p.m. EDT.
As I wrote in my earnings overview: “Many investors will likely approach the Connected Home Exercise Leader Report with a fair amount of caution. and its one-quarter overlap from a year ago which was heavily boosted by the pandemic. “
Wall Street expects quarterly revenue to grow 52% year-over-year (and 41% organically) to $ 921.7 million. Analysts are also forecasting an adjusted loss of $ 0.44 per share, compared to adjusted earnings per share of $ 0.27 for the period last year.
There are two topics that it would be useful for investors to learn more about, but it seems unlikely that an analyst will address them when calling the results.
1. How many subscribers suspended their subscription during the quarter?
First, let’s pay homage to all the credit: Peloton provides a number of stats regarding its subscribers and their usage of the company’s streaming content.
It does a better job in this regard than, say, an online custom clothing retailer. Point correction. Although the two companies operate in different industries within the consumer discretionary sector, they both have a subscription-based business model. I thought Stitch Fix should provide a few more key metrics including a customer retention metric.
That said, what I’d like to know (and I’m sure there are investors who would too) is what percentage of Peloton’s total connected fitness subscribers have suspended their membership at some point in the during the quarter? How long, on average, have they suspended their subscriptions? And how do those numbers compare to the same metrics from the previous year and the last quarter?
In its quarterly reports, Peloton provides its number of connected fitness subscriptions and its average monthly churn rate. However, these numbers do not take into account users (or members, as Peloton calls them) who have suspended their subscriptions. Members can suspend their subscription for up to three months at a time.
In other words, the number of connected fitness subscribers provided by Peloton almost certainly overestimates the current number of subscribers to an unknown degree. paying the subscribers. In turn, this would likely underestimate the average monthly number of unsubscribes for paying the subscribers.
To be clear: Peloton isn’t doing anything wrong here. It makes sense to allow members to suspend their subscriptions for a brief period while they are still considered subscribers, as things come up: surgery, vacations, etc. But it would help if investors got some quantification around this pause option. The trend in metrics related to pauses over time would likely be revealing.
2. What is your response to the allegation that the company improperly charged sales tax in three states?
If an analyst asks the above question, management will likely say something like “We do not comment on pending litigation.” This is the standard answer businesses have to such questions.
But I think it would be up to Peloton to tackle this topic one way or another, as there has been a lot of talk about this in 2021 on sites like Reddit. Consumer goods companies cannot afford disgruntled customers because word of mouth is crucial to them. This is even more true in the age of social media.
Reuters‘summary of the problem:
Peloton Interactive Inc subscribers have filed a proposed class action lawsuit accusing the home stationary bike maker of improperly charging sales tax on subscriptions in New York City, Virginia and Massachusetts.
In a complaint filed Thursday evening [Aug. 12] in Manhattan federal court, Brandon Skillern and Ryan Corken said Peloton should have treated its $ 39 per month digital subscriptions and $ 12.99 per month digital subscriptions as tax-exempt “digital goods” in three states. They said Peloton refused to reimburse them for the 6.3% or 8.9% “sales tax” it collected before Jan. 1, when it changed its tax practices. Millions of dollars nationwide may have been inappropriately raised, they said.
According to Avalara, a provider of transaction tax compliance solutions, as of December 2020, 17 US states “generally exempt digital goods and services” from sales tax, although some states have specific exceptions to their overall policy. (Plus, some cities also have a sales tax.) That said, those 17 states include the three states named in the Peloton complaint.
The tread will be back on the market soon
Since posting my earnings preview, Peloton has shared some good news: on Tuesday it announced that its new Peloton tread will be available in United States, Canada, and the UK August 30, and in Germany in autumn.
The Tread is the less expensive of the two treadmill models recalled by Peloton and suspended sale in May. The company has reported that its touchscreen is loosening and, in some cases, coming loose and falling. The new version of the tread has improved safety features.
Peloton’s announcement on Tuesday did not mention the status of the Tread +, the top-of-the-line model linked to the death of a young child and dozens of reported injuries.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Questioning an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.