The Ratings Game: Peloton’s losses outweigh sales momentum in first earnings report

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Peloton Interactive Inc. has a rosy view of the holiday quarter, but continued steep losses seem to be winning out in investors’ minds after the connected-fitness company’s first-ever earnings report.

Shares of Peloton PTON, -5.28%  are off 5.4% in Tuesday trading after the company beat revenue expectations and delivered an upbeat forecast but reported steeper losses than expected. Peloton’s stock has been met with a lukewarm reception since the company’s September initial public offering amid heightened concerns on Wall Street about fast-growing companies that are losing money.

Peloton highlighted a number of areas driving further investment spending, including international expansion, increased marketing efforts around the company’s new treadmill, and new “teams and systems” to support the company now that it’s public.

President William Lynch told investors on Peloton’s earnings call that the company is seeing “tremendous efficiencies” in our bike business that’s helping to “offset slightly some of the less efficient spend” involved in expanding overseas and building out the new Tread product line.

He said that the company saw triple-digit sales growth in its hospitality business, which focuses on getting Peloton equipment into hotel gyms. “The demand we’re seeing from the consumer definitely is spilling into hospitality,” he said on the company’s conference call.

The analysts who cover Peloton are overwhelmingly optimistic about the stock, and they cheered Tuesday’s results.

“This is a strong set of results for Peloton out of the gate, with revenue, subscribers and margins all beating expectations,” wrote Bernstein’s Jamie Merriman, who rates the stock at outperform with a $29 target price.

Stifel’s Scott Devitt highlighted the company’s connected-fitness net additions of 52,000, compared with the roughly 33,000 that analysts had been expecting. He pointed to benefits from Peloton’s newly launched home free-trial offer.

“While it is still early, we are very pleased by the initial sales impact from Home Trial and the marketing efficiencies gained by an increase in conversion from this program,” the company said in its earnings letter.

Peloton shares are off 20% from their IPO price of $29.