Peloton Interactive, Inc.

Peloton delivered a mixed performance in the quarter as its revenues were well above Wall Street expectations but the company’s losses were wider than expected. Peloton’s reserves, related to the stock from their Tonic production facilities, decreased their Connected Fitness gross margin by around $32 million for the quarter. Fitness-as-a-Service (FaaS) and the pre-owned business performed well on a quarter-over-quarter basis. FaaS has doubled and expanded quickly in the quarter though it does face significant competitive threats from players like Tonal. The company experienced higher costs due to some surplus and obsolescence reserves. While it is no longer experiencing the Covid-19 related tailwinds, the fact that the company has been able to survive and perform does indicate some level of resilience of its virtual fitness offerings. We give Peloton a ‘Hold’ rating with a revised target price.