Peloton founder: We are dealing with a 'crush' of demand

Peloton founder and CEO John Foley says it’s going to be a hot minute or two before the company catches up with “explosive” demand for its connected bikes and treads — which has led to long delivery wait times for customers — caused by the COVID-19 pandemic.

Or more precisely weeks — or months in the case of the new Bike+ — as Peloton (PTON) continues to invest aggressively in manufacturing capacity for its offerings. The investments in capacity to work off a surge in backlog are critical as Peloton now appears to be seeing a new wave of demand as COVID-19 infections pick back up globally and keep people contained indoors.

“The demand we're seeing is organic demand for the most part, and it's being helped by a second wave of COVID-19,” Foley tells Yahoo Finance.

Although a high class problem to have, the ‘crush’ in demand — as Foley calls it — held back Peloton’s most recent quarterly earnings and outlook to an extent. Connected fitness subscribers increased 137% year-over-year to 1.33 million, falling short of some analyst estimates. The company’s connected fitness subscriber guidance for the holiday quarter of 1.63 million failed to meet Street whisper numbers, BMO Capital Markets analyst Simeon Siegel told Yahoo Finance.

Peloton’s stock flirted between gains and losses by Friday afternoon trading.

A projection of a desert scene is casted onto a wall near a Peloton fitness bike in a basement home gym, Tuesday, Sept. 15, 2020, in Lutherville-Timonium. Home gyms have picked up in 2020 with sales of exercise bikes going up during the COVID-19 pandemic. (AP Photo/Julio Cortez)
A projection of a desert scene is casted onto a wall near a Peloton fitness bike in a basement home gym, Tuesday, Sept. 15, 2020, in Lutherville-Timonium. Home gyms have picked up in 2020 with sales of exercise bikes going up during the COVID-19 pandemic. (AP Photo/Julio Cortez)

Here is how Peloton performed compared to Wall Street expectations.

  • Net Sales: $757.9 million versus $748.4 million estimate

  • Connected Fitness Subscriptions: 1.33 million versus 1.33 million estimate

  • Adjusted EBITDA: $118.9 million versus $90.3 million estimate

  • Diluted EPS: $0.20 versus 11 cents a share estimate

  • Fiscal Year Sales Guidance: $3.9 billion “or more” versus estimate for $3.6 billion (prior forecast: $3.5 billion to $3.65 billion

  • Fiscal Year Adjusted EBITDA Guidance: $300 million “or more” versus estimate for $270 million (prior forecast: $200 million to $275 million)

Peloton’s stock has been one of the best stay-at-home trades this year — up an impressive 467%. With that strong performance comes high expectations around future growth rates and execution. Besides the backlog bulge, Peloton did see a slight tick down sequentially in its closely watched “average number of workouts” metric. Foley says it’s due to seasonality. In all, not entirely a clean earnings day for Peloton in the minds of the growth obsessed folks on Wall Street.

By and large though, the Street has come out in defense of Peloton’s stock following the report.

“We see Peloton increasingly capitalizing from a secular shift in consumer behavior amid extended social distancing, with elevated demand we're seeing for at-home fitness (longer order to delivery for "couple more quarters") and reflected in sustained low churn levels (0.65% vs. 0.90% year ago). With over $2 billion of liquidity, we believe Peloton has significant resources to continue investing in product and platform to drive growth,” wrote CFRA analyst Camilla Yanushevsky in a note to clients.

Yanushevsky left her Buy rating on Peloton’s stock.

It’s probably the right move. Not a lot of companies out there right now have high class problems (see too much demand or a product that drives a recurring revenue stream) in the same vein as Peloton.

Brian Sozzi is an editor-at-large and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.

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