Peloton produces profit for the first time amid pandemic-demand spike, stock pushes toward new record


Peloton Interactive Inc. reported fiscal fourth-quarter earnings Thursday afternoon.


MarketWatch photo illustration/iStockphoto

A year after its initial public offering, Peloton Interactive Inc. is pedaling toward new highs amid a pandemic that is forcing people into their homes and away from gyms, creating demand for at-home fitness equipment.

Peloton
PTON,
-3.75%

on Thursday wrapped up its fiscal year by reporting that sales and subscribers roughly doubled in the 12-month period, and revealed its first profitable quarter as a public company and record quarterly revenue a little less than a year after its September 2019 IPO. Shares fell 3.8% Thursday from Wednesday’s record closing price of $91.17 — more than three times the IPO price of $29 a share — but pushed back toward record highs in after-hours trading following the release of the report, with gains of more than 7%.

Peloton reported fiscal fourth-quarter profit of $89.1 million, or 27 cents a share, on sales of $607.1 million, up from $223 million a year ago. Peloton reported a net loss of $47 million in the fiscal fourth quarter a year ago, just ahead of its IPO. Analysts on average expected earnings of 10 cents a share on sales of $586 million, according to FactSet.

“It has been another staggering year of growth, and I know all parts of the organization have had to work together to do everything possible to meet the incredible demand for our products and services,” Chief Executive James Foley said in a conference call Thursday. “The strong tailwind we experienced in March as the COVID-19 pandemic took hold has continued to propel demand for our products into the fourth quarter and first couple of months of Q1 fiscal year 2021.”

While still attempting to catch up to a flood of orders amid the COVID-19 pandemic — Peloton said Thursday it does not expect order-to-delivery times to normalize until around the end of the calendar year — the company is also looking to expand its customer base. On Monday, Peloton announced that it will reduce the price of its standard exercise bike and introduce a lower-priced treadmill, which could clear a path for potential buyers who were not willing to pay the large upfront costs for its products. It will also introduce a premium bike for fans who want top-of-the-line equipment.

Wedbush analysts noted that in a previous survey of 1,200 people, they found that Peloton could “dramatically improve” sales at a lower price point, especially in treadmills.

“42% of non-Peloton owners that were interested in fitness and familiar with the brand showed some level of interest in a $2,500 Tread, compared to just 30% showing interest in the current Tread,” the analysts wrote in a Sept. 9 note, after Peloton announced its new lineup. “Among existing Peloton bike owners, the number of respondents saying they would be ‘very interested’ in owning a treadmill from Peloton doubles based on the lower price, from 14% based on the $4,295 price point to 28% assuming a theoretical (at the time) $2,500 price point.”

While lower sales prices could hurt hardware margins and average selling prices, much of Peloton’s long-term prognosis focuses on the subscriptions for interactive workout media that owners continue to pay after they have received the equipment. Peloton announced Thursday that it now has 1.09 million subscribers, nearly doubling the 511 million that it reported at the end of its last fiscal year, topping its forecast of 1.04 million to 1.05 million.

In total for the fiscal year, Peloton collected revenue of $1.46 billion from the sale of equipment and $363.7 million from subscription services, up from $719 million and $181 million, respectively, in the previous fiscal year. Combined with other revenue from merchandise and other offerings, Peloton ended the year with $1.83 billion in sales, up from $915 million.

“By the end of FY 2020 our Peloton membership base grew to approximately 3.1 million, compared to 1.4 million members in the prior year,” Peloton detailed in a letter to shareholders Thursday. “Fueled in part by the challenges associated with COVID-19, member engagement reached new highs with 164 million Connected Fitness Subscription workouts completed in FY 2020.”

For the current fiscal year, which began in August, Peloton predicted htat subscribers and revenue would roughly double yet again. The company guided for revenue of $3.5 billion to $3.65 billion, with connected subscribers swelling to 2.05 million to 2.1 million. Analysts on average were predicting revenue of $2.74 billion and subscribers of 1.78 million ahead of the report, according to FactSet.

Peloton stock has gained more than 260% since its IPO; the S&P 500 index
SPX,
-1.75%

has returned 17.7% in that time. In after-hours trading Thursday, shares topped $94 following the release of the report.



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Coronavirus spike in the dog days of summer saps economy of momentum


Summer doldrums are taking on a whole new meaning during the coronavirus pandemic. The momentum in the U.S. economy appears to have melted away.

It’s not the July heat that’s at fault, of course. It’s a wave of new outbreaks of COVID-19 across the country that has forced some states to reimpose economic restrictions and others to pause further business reopenings.

Thirty-eight U.S. states have seen a rise in cases in the past 14 days. Harvard Global Health Institute researchers have developed a national tracker to trace the severity of the outbreak on a state-by-state basis, and it’s flashing red for Arizona, Florida, Louisiana, South Carolina and Georgia, with 25 cases per 100,000 people.

The loss of momentum in the recovery is evident in key segments of the economy such as retail and dining out. Some businesses in California, Texas and elsewhere have been ordered to scale back operations again. At the same time, fear of catching the virus has made Americans more reluctant to venture out.

Two companies that track how many workers punch digital time clocks or time-tracking apps, Homebase and Kronos, indicate the number of shifts worked began to flatten out at the end of June and declined in the first week of July.

See: MarketWatch Coronavirus Recovery Tracker

Some of the decline in shifts worked is clearly the result of the July 4 holiday, but the spike in coronavirus cases has also played a role.

“Rising COVID-19 cases, particularly across the Midwest and Southeast, present a new challenge for businesses trying to reopen and stay open,” said David Gilbertson, vice president of HCM strategy and operations at Kronos.

Another worrisome sign is an explosion in the number of people applying for unemployment benefits under an emergency-federal relief program.

These claims have surged 53% in the past month to nearly 14.5 million, nearly equaling the 16.8 million people collecting benefits through the traditional state-run unemployment compensation system.

Read: Soaring demand for federal jobless benefits points to fresh fissures in the economy

And: Jobless claims tell us 32.9 million people are unemployed, but is it really that bad

Workers who file under the federal program include the self-employed such as doctors, writers, Uber
UBER,
-0.03%

drivers and other “gig” economy workers who would not have been eligible for jobless benefits in the past.

Read: Wholesale prices drop in June — inflation very low due to the coronavirus pandemic

The increase indicates the latest economic troubles are “hitting non-traditional workers harder than those in regular payroll jobs,” said Ian Shepherdson, chief economist of Pantheon Economics.

Whatever the case, the economic recovery can’t sustain its recent momentum if more than 30 million people are out of work and collecting unemployment benefits. The expiration of a $600 a week unemployment bonus at the end of July will add to the problems: A divided Congress is unlikely to extend the bonus.

Read:Goodbye, extra $600: Jobless benefits won’t exceed former wages in next relief bill

Investors on Wall Street, already nervous about the coronavirus spike, will look for further clues on whether the economy is slowing in reports this week on retail sales in June and consumer sentiment in July.

See: MarketWatch Economic Calendar

Economists predict retail sales rose by more than 5% in June following a nearly 18% rebound in May. Sales probably were OK in June because states didn’t began to reimpose restrictions until later in the month. Yet if retail sales disappoint, the reaction on Wall Street may well be negative.

What will probably be more telling is the preliminary look at consumer sentiment in early July. There are signs Americans have reduced travel, avoided restaurants, and taken more precautions with the virus running amok again in many states.

While there’s many reasons to be worried about the economy, states in the Northeast such as New York continue to reopen businesses. And even the states that have tightened restrictions again have done so in a more limited way than they did in the early stages of the lockdown when much of the economy was closed.



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Treasury yields edge lower as doubts of U.S. recovery creep up as coronavirus cases spike


Treasury yields retreated from their session highs Thursday, amid haven buying driven by concerns that recent U.S. labor-market gains seen in June’s job report could be undermined if the nation fails to bring the coronavirus under control.

The bond-market will be shuttered on Friday in honor of Independence Day, based on recommendations from Securities Industry and Financial Markets Association.

What are Treasurys doing?

The two-year yield
TMUBMUSD02Y,
0.156%

edged 0.9 basis point lower to 0.155%, contributing to a 1.2 basis point drop for the week.

The 10-year note yield
TMUBMUSD10Y,
0.673%

fell 1.2 basis points to 0.670%, trimming the benchmark maturity’s weekly rise to 3.4 basis points, while the 30-year bond yield
TMUBMUSD30Y,
1.432%

was unchanged at 1.431%, leaving its weekly rise of 5.9 basis points intact. Both long-dated maturities marked their biggest weekly increase in a month.

What’s driving Treasurys?

The bond-market initially came under pressure after the U.S. Labor Department reported the U.S. economy had added 4.8 million jobs last month, above the forecast of 3.9 million from MarketWatch-polled economists. The unemployment rate fell to 11.1%, dropping for a second month in a row.

Analysts cautioned that the labor market could struggle to recover swiftly if the spreading COVID-19 pandemic slows down consumer spending as Americans stay indoors, not necessarily due to lockdown measures but out of fear of catching the disease.

The global tally for confirmed cases of the coronavirus that causes COVID-19 rose above 10.7 million on Thursday, according to data aggregated by Johns Hopkins University, and the U.S. recorded more than 50,000 new cases in a single day, for the first time since the start of the outbreak.

Opinion: Fed warns stock market of a second recession if the coronavirus pandemic isn’t brought under control

Other data also accompanied the job’s report release. The trade deficit widened in May to $54.6 billion and weekly jobless benefit claims rose by 1.43 million in the seven-day period ended June 27.

What did market participants say?

“This jobs report is very good, but backward-looking. When you look at the jobless claims numbers it gives you a more sobering perspective on what’s happening in the economy,” said Tony Rodriguez, head of fixed income strategy at Nuveen, in an interview.

“There’s continued risk that a second-wave could reverse some of these job gains in July, but that should not take away from the strength of the June data,” said Thomas Simons, senior money market economist at Jefferies.



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Google postpones U.S. office reopening to September as virus cases spike By Reuters


© Reuters.

By Kanishka Singh

(Reuters) – Alphabet Inc’s (O:) Google said late on Tuesday it was delaying the reopening of its U.S. offices by around two months because of a surge in the number of coronavirus cases in some states.

All of Google’s U.S. offices will now remain closed at least until Sept. 7, Google spokeswoman Katherine Williams (NYSE:) told Reuters.

Google said in late May it would reopen buildings in more cities at roughly 10% of their capacity beginning July 6 and scale it up to 30% in September, if conditions permitted.

Williams confirmed a Bloomberg report that cited an internal memo to employees sent by a Google executive.

“For all of you that are working from home, please continue to do so unless you are told otherwise by your manager,” Chris Rackow, Google’s vice president of global security, said in the memo.

“We don’t expect this guidance to change until Monday, Sept. 7 (Labor Day) at the earliest,” Rackow wrote, adding that the recent rise in coronavirus cases in the United States demonstrates that “COVID-19 is still very much alive”.

The development comes as coronavirus cases in June more than doubled in 14 U.S. states, including California, Florida and Texas, a Reuters analysis on Tuesday showed.

Nationally, cases rose by at least 46% and deaths increased by 21% during the month.

On Tuesday alone, new U.S. COVID-19 cases rose by more than 47,000, according to a Reuters tally, the biggest one-day spike since the start of the pandemic that has claimed nearly 510,000 lives worldwide.

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Micron earnings show spike in memory sales, forecast suggests more of the same


Micron Technology Inc. shares jumped in after-hours trading Monday after the memory-chip maker said sales surged in the third quarter and are expected to remain strong in the final period of its fiscal year amid the COVID-19 pandemic.

Micron
MU,
+1.35%

forecast adjusted fiscal fourth-quarter earnings of 95 cents to $1.15 a share on revenue of $5.75 billion to $6.25 billion, which would be a big gain from a year ago when the company reported earnings of 56 cents a share on revenue of $4.87 billion.

Analysts surveyed by FactSet, on average, were predicting fourth-quarter earnings of 79 cents a share on sales of $5.46 billion, according to FactSet.

Shares gained more than 5% in after-hours trading, following a 1.4% gain in the regular session to close at $49.15.

“As we look ahead at the second half, of course, you know, given the total COVID environment and uncertainties around COVID around the globe, we basically have limited visibility,” said Sanjay Mehrotra, Micron’s chief executive, on a conference call.

“Yet, we do believe that cloud demand in the second half of the calendar year will continue to be healthy for us,” Mehrotra said.

Micron specializes in DRAM and NAND memory chips. DRAM, or dynamic random access memory, is the type of memory commonly used in PCs and servers, while NAND chips are the flash memory chips used in USB drives and smaller devices, such as digital cameras. While the COVID-19 pandemic has been cited as fueling a boost in memory-chip sales, many analysts suspect that may have oversupplied the market, which could bode poorly for the second half of the year — but not according to Micron’s forecast.

The company reported fiscal third-quarter net income of $803 million, or 71 cents a share, compared with $840 million, or 74 cents a share, in the year-ago period. Adjusted earnings were 82 cents a share, compared with $1.05 a share in the year-ago period. Revenue rose to $5.44 billion from $4.79 billion in the year-ago quarter.

Analysts had forecast adjusted earnings of 75 cents a share on revenue of $5.27 billion.

Micron had already informed investors that it would outperform its original expectations. In late May, Micron forecast adjusted earnings of 75 cents to 80 cents a share and revenue of $5.2 billion to $5.4 billion, up from its forecast of 40 cents to 70 cents a share on revenue of $4.6 billion to $5.2 billion back in March.

For the year, Micron shares are off about 10%, while the PHLX Semiconductor Index
SOX,
+1.14%

SOX,
+1.14%

is up 4%. Meanwhile, the S&P 500 index
SPX,
+1.46%

is down 6%, and the tech-heavy Nasdaq Composite Index
COMP,
+1.19%

is up 9%.



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