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Pandemic pushes Peloton past half a billion dollars in sales in first three months of year

Losses increase though as shipping costs rise and company warns of delays in fulfilling orders

Lockdown ​restrictions introduced by governments across the world to try and contain the COVID-19 pandemic have helped push sales of at-home fitness bike brand Peloton past half a billion dollars for the first three months of the year – but increased costs have seen losses worsen compared to last year.

The boom in exercising at home has seen sales boom at many companies across the fitness sector and it’s no surprise that the New York City-based company, launched on Kickstarter in 2013 and which secured an IPO on the NASDAQ exchange last year, is among them.

In a letter to shareholders, the company said that sales reached $524.6 million in the first three months of 2020, the third quarter of Peloton’s financial year, up 66 per cent year-on-year.

Equipment – the company’s exercise bikes and treadmills, with their built-in screens – saw sales growth of 61 per cent to $420.2 million, with big growth towards the end of the quarter as people in its core market of the US were told to stay at home.

Subscriptions to the workouts Peloton streams to users, meanwhile, rose 92 per cent year-on-year to $98.2 million.

However, unexpected increases in costs primarily relating to shipping hit its bottom line, with losses for the quarter totalling $55.6 billion, a 44 per cent increase on the first quarter of 2018.

 Sales of the treadmill were paused on 19 March, but Peloton says that the growth in orders for its bikes has continued into the final quarter of its financial year, which ends on 30 June.

The company now expects annual sales of between $1.72 billion and $1.74 billion, a $200 million increase on its previous guidance to the market.

However, it cautioned that it is having problems with actually getting orders to people who have ordered its bikes, something that it expects will continue in the fourth quarter.

The company said: “We entered Q4 with a backlog of bike deliveries in all geographies and sales continue to surpass expectations in the first several weeks of Q4 due to COVID-19,” the letter to shareholders reads.

“Unfortunately, the unexpected sharp increase in sales has created an imbalance of supply and demand in many geographies, causing elongated order-to-delivery windows for our customers.”

It added: “We do not expect to materially improve order-to-delivery windows before the end of Q4.”

The company’s studios in New York City and London and 97 showrooms in the US, Canada, UK and Canada are all currently closed.

Peloton’s share price reached record heights following the announcement of the results, a sharp contrast from the hit it took in early December when $1 billion was knocked off the company’s market value due to the backlash to its pre-Christmas advertising campaign.

The advert, which depicted a slim woman being given a Peloton bike by her partner for Christmas then giving him a present the following year of a video of her using the bike each day, was widely condemned for being sexist and reinforcing body stereotypes.

> Peloton defends Christmas advert

More recently, as lockdowns spread across the US and elsewhere in March, the company’s profile received a boost in the media after world number one-ranked golfer Rory McIlroy – dubbed a “Peloton stud” by Golf Digest – challenged rivals to workouts on the platform.

> “Peloton stud” Rory McIlroy invites golf rivals to static cycling challenge

Simon joined as news editor in 2009 and is now the site’s community editor, acting as a link between the team producing the content and our readers. A law and languages graduate, published translator and former retail analyst, he has reported on issues as diverse as cycling-related court cases, anti-doping investigations, the latest developments in the bike industry and the sport’s biggest races. Now back in London full-time after 15 years living in Oxford and Cambridge, he loves cycling along the Thames but misses having his former riding buddy, Elodie the miniature schnauzer, in the basket in front of him.

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EddyBerckx | 4 years ago

Half a billion in sales yet losses increase? Just what is their business model here??

gary p replied to EddyBerckx | 4 years ago

Peloton are showing big quarterly and annual losses because they are spending every spare penny they have, and any more they can scrape up, on marketing. If they were a hardware business, it wouldn't make sense. But they're not a hardware business, they're a subscription business. Yes, they sell hardware, but primarily as a means to gain and retain subscribers.

Because of the nature of their business, it's reasonable to assume that marketing expenses incurred gaining customers in the current year will generate subscription revenue for years to come. (Think about it; if Peloton cut all marketing today, would the many thousands of folks who sunk ~$2000 into one of their bikes react by immediately canelling their subscriptions? Not likely.) So long as Peloton is growing rapidly, the up- front marketing costs of acquiring new, long-term subscribers is going to skew the short-term financial results.

The variable costs to service additional subscribers is minimal; future content delivery costs are largely fixed whether they have 200,000 subscribers or 2 million. Therefore, as long as escalating marketing budgets continue to yield proportionally escalating subscriber volumes, it makes sense for Peloton to throw every dollar they can into marketing. The more subscribers they have, the greater the gross margins will be on the subscription fees. When they approach market saturation (signaled by diminishing subscriber growth returns on marketing dollars spent), they'll be able to cut the marketing budget substantially. It will cost far less to retain a subscriber base than it did to grow it +/-100% annually for several years in a row. Then they can finally start milking the subscription revenue cow that they've been fattening up all along.

werics replied to gary p | 4 years ago
1 like

The thing is, they ARE still a hardware business. They were kind enough to break the subscription number out for us, and it's what, around a quarter of their business? Yes, at some point, maybe they'll stop selling so mamy bikes and running so many ads and just collect a check, but they have to show up to that point solvent.

gary p replied to werics | 4 years ago
1 like

The raised over a billion dollars in their IPO last year.  They're a long way from going insolvant.  


Chris Hayes | 4 years ago

Hmmm....I thought that C-19 would save Peloton, or at least delay their inevitable demise, but an inability to meet an increase in demand on a cost-effective basis?That's a fuck up on the scale of We Work.  But I guess you can still keep pedaling once there's no one shouting at you from your monitor  1 

Sriracha | 4 years ago

So losses (not just costs) increase with sales? Sounds like British Leyland.

check12 | 4 years ago

I imagine this is supposed to be million? 
with losses for the quarter totalling $55.6 billion

ktache replied to check12 | 4 years ago

Reading the letter, I believe it is millions, but with the Peleton business model...?

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