Shares of Peloton Interactive (NASDAQ: PTON) were soaring last month after the struggling connected-fitness company posted better-than-expected results in its fiscal fourth-quarter earnings report, showing investors that the business could finally be mounting a turnaround.
According to data from S&P Global Market Intelligence, the stock finished last month up 31%. As you can see in the chart, all those gains came from the earnings report. In fact, the stock was down for the month before those results came out.
Peloton picks up speed
Peloton still faces a lot of challenges, but the fiscal fourth-quarter results showed the business moving in the right direction in some key categories. Revenue in the quarter rose for the first time in 10 quarters, up 0.2% to $643.6 million, topping estimates at $630.6 million, as it reported 2.3% growth in the subscription segment to $431 million.
It made substantial progress on the bottom line, as gross margin soared after it closed its Precor manufacturing facility in North Carolina. That led its connected fitness gross margin to jump from -37.5% to 8.3% and drove adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) up from a loss of $34.7 million to $70.3 million.
On the bottom line, the company reported a generally accepted accounting principles (GAAP) per-share loss of $0.08, up from a loss of $0.68 in the quarter a year ago and better than expectations of a loss of $0.17.
Image source: Peloton.
Can Peloton keep gaining?
Peloton introduced more changes designed to improve profitability, including a new one-time $95 used-equipment activation fee that should help it capitalize on the healthy secondary market for used Peloton equipment.
However, overall guidance indicated that the recovery still has a long way to go, as the company sees revenue falling 4% at the midpoint to $560 million-$580 million in the first quarter, and full-year revenue down 9% to $2.4 billion-$2.5 billion, due to a decline in hardware sales. Both those forecasts were below expectations.
Peloton expects adjusted EBITDA to continue ramping up, targeting $200 million-$250 million for the full year, meaning the stock is now trading at eight times the midpoint of that EBITDA forecast.
Peloton is still searching for a permanent CEO, and a full-fledged turnaround plan is likely awaiting a new boss. Returning the company to solid growth will be difficult, but the upside potential is there if the company can achieve it.
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Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Peloton Interactive. The Motley Fool has a disclosure policy.
