Peloton's 8% drop highlights a classic Growth vs. Profits tradeoff
This is my first time, so cut me some slack... Fresh off its September IPO, Peloton announced its first quarterly earnings report as a publicly traded company Tuesday. The results and calorie count all beat analysts' expectations:
- Revenue more than doubled to $228M.
- The number of Peloton monthly subscribers (you buy the $2K bike, then you drop $39/month to be yelled at via streaming spin classes) more than doubled to 563K.
- Peloton projected it'll add 100K Pelotonistas this holiday season.
- Plus: The average number of workouts per month on Pelotons rose from 8.7 to 11.7 (more fun stats in this pretty presentation).
So it's a shocker that the stock dropped 8%... Peloton felt like a middle schooler who brought home A's when their parents expected B's — and then got grounded. Its CEO struggled to rationalize Wall Street's punishment for its rippling results: "The stock going backward is a bit of a head-scratcher, I’ve got to be totally honest with you." Well put.
This is a claaaassic "Profits vs. Growth" tradeoff... Peloton loses money each quarter, spending more than it brings in. Its $50M loss invited investor disgust, but the CEO pointed out the loss was necessary in order to grow quickly. You're either focused on profits or growth — in the saddle or out of it:
- Peloton could cancel its expensive TV ads, stop adding stores at fancy malls, and layoff salespeople to become profitable.
- But is that the right move at this crucial moment when Mirror and SoulCycle are chasing its head start?