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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A reminder as schools reopen — federal law now gives some parents paid time off to help their kids with remote learning


Last month, a recently-reopened school district near Atlanta, Ga. told more than 1,000 students and staffers they had to quarantine after a coronavirus outbreak.

Earlier this month, approximately 450 students and employees in a central Florida school system needed to isolate after positive COVID-19 cases. Almost 2,000 miles away, around 100 teenagers and staff in a Denver-area school had to do the same because of cases in their school.

Rocky school reopenings are already upending educators’ plans this fall — and they’re likely doing the same thing to the work schedules of many parents who, if they aren’t already working from home, may suddenly need to be there with their quarantined student.

The good news is there’s a range of employee leave laws that could conceivably kick in to protect parents in this situation, separate and apart from an employer’s own paid time off policies. The tricky part, however, is that there’s a complicated mix of rules. And the worrying note, some say, is that the laws don’t do enough to help parents who are trying to make it all work right now.

New federal laws temporarily expanded paid family leave

During the early days of the pandemic, federal lawmakers passed the Families First Coronavirus Response Act (FFCRA). Though America is the only highly industrialized country without a federal paid family leave law, the FFCRA temporarily enabled paid leave for families pulled from work to quarantine, care for others with COVID-19, or care for children who are at home because of closed day cares and schools.

The FFCRA has two important parts: one portion addressing emergency paid sick leave and another portion for expanded family and medical leave.

When it comes to school and child care, the U.S. Department of Labor says covered workers can access up to two weeks (80 hours) of emergency paid sick leave at two-thirds pay. The cap on pay in this time period is $200 daily and $2,000 total, according to the Center for WorkLife Law within the University of California, Hastings College of the Law.

A covered worker (they have to have been on the payroll for at least 30 days) can also tap the law’s expanded family and medical leave for an additional 10 weeks of pay at two-thirds their compensation. In that 10-week period, an employer pays a maximum of $200 a day and up to $10,000 total, the Center for WorkLife Law. Employers ultimately receive a dollar-for-dollar tax credit that covers them for paying the leave.

The law applies to employers with fewer than 500 workers. A small business with fewer than 50 workers can apply for an exemption if it can show the absence of employees would jeopardize its operations and bottom line.

The paid leave provisions are in effect from April 1, 2020, to Dec. 31, 2020.

If a school closes for half a day, parents can get paid time off

The Labor Department weighed in late last month on how the FFCRA fit in with the fall school year.


If a student attends school some days but has distance learning on other days, parents can receive paid leave on the days their child is home.

If a student physically attends school some days, but has distance learning on other days, the department said a parent can get paid leave on the days their child is home. That’s because the school is essentially “closed” to the student for the day in eyes of the law. (If a child is home under a quarantine order, that can justify the parent’s paid leave.)

On the other hand, if a parent chooses all remote learning instead of in-person instruction, they cannot access paid leave under the federal law. The school is not “closed” in that context, the Labor Department said.

If school administrators start the year remotely and say they’ll make a reopening decision at a later date, the school is still closed and the paid leave is still available.

Likewise, a school might be open, albeit for a half day. The FFCRA allows workers to apply for paid leave in bite-sized pieces, like from 2:30 p.m. to 4 p.m.

“You may take intermittent leave in any increment, provided that you and your employer agree,” a Labor Department questionnaire said. “The Department encourages employers and employees to collaborate to achieve flexibility and meet mutual needs.”

State and local laws can support working parents too

Now consider the fact that FFCRA isn’t the only paid leave law out there.

As the pandemic continued, various states and cities have expanded their paid leave laws to incorporate things like school closures. Is it possible to stack the time off, so that a parent could pull paid leave from one law and then turn around and pull from another?

“It depends what law you talking about and what the context is,” said Liz Morris, deputy director of the Center for WorkLife Law. “The bottom line is, it’s extremely complicated the way these laws all interact.”

The center launched a helpline in April to assist workers navigating all the rules out there. “Anybody who has COVID-19 caregiving issue in workplace can call,” Morris said.

The center’s helpline is (415) 851-3308 and its email is: covid19helpline@worklifelaw.org.

Morris’ team has talked to people trying to figure out the leave laws, pregnant women and new mothers who are concerned about being at work and others with health conditions who are worried about returning to work.

There’s a range of federal and state laws, but Morris said they may not be good enough for everyone — especially if they’ve already used up their paid leave under the FFCRA.


‘We’re trying to rely on this patchwork… What we really need is a single comprehensive law that protects everyone.’


— Liz Morris, deputy director of the Center for WorkLife Law at University of California, Hastings College of the Law

“We’re trying to rely on this patchwork of laws to bring together a set of legal rights for people so that they just have a job to return to when this is all over and need income … What we really need is a single comprehensive law that protects everyone.”

Paid time off is important for parents juggling work and school right now, but it’s not everything, said Rich Fuerstenberg, senior partner in the Life, Absence and Disability practice at Mercer, a human resources consulting firm.

For one thing, leave under the FFCRA “is a one-shot deal. Once it’s gone, it’s gone,” he noted.

Going into the fall, Fuerstenberg said the companies he’s been working with have been thinking hard about their work schedule flexibility policies, how they can assist with child care costs and also looking at how much paid time off they are giving staff.

Almost two-thirds (62%) of companies said they were allowing parents to change their work schedules so employees could manage their child’s new school routine this fall, according to a July-August Mercer survey of more than 800 employers.



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Virology experts say the key is keeping Spain’s hospitals from becoming overwhelmed by COVID-19 this time


MADRID — Just days away from the start of a new school year, Spain’s capital city rolled out fresh restrictions on Monday to cope with what’s becoming a relentless second wave of cases.

But those measures — strict controls on the distance between seats rather than tables in food-service settings, reducing funeral attendance to 25 people indoors and 50 outdoors, and 10-person limits on social gatherings — seem modest as the country’s total infections close in on 500,000, according to the latest data from Johns Hopkins. Official numbers indicate that threshold has already been reached. Spain’s is the highest infection total in Europe, though it pales against the 6 million–plus cases in the U.S., which has seven times Spain’s population.

Madrid’s new measures are cold comfort to parents, including this journalist, who will be sending at least one child to all-in-person classes of 21 children. More than 2,000 of 66,000 Madrid teachers recently tested positive for COVID-19 and will have to be retested. Elsewhere in the country, two schools have already had to close due to infections.

At the heart of the resurgence of Spain’s cases has been a rush to return to normal. Spain’s experience has also been impacted by government desperation to get the tourism industry and bars back in operation; overly relaxed family gatherings; insufficient safety protocols for field workers; and the behavior of idle youth with effectively nothing to do but party, and spread the virus.

Much as New York did, Spain climbed out of the depths of COVID-19 infections with the strictest measures possible, but Spain fell right back two months later. How the country pulls itself out this time may be a blueprint for other countries and municipalities to follow. MarketWatch spoke to these experts via email in hope of shedding light on where Spain stands now and what should be done.

Juan Jesús Gestal Otero, professor emeritus of preventative medicine and public health at the University of Santiago de Compostela in Galicia, was one of 20 experts who signed a letter in the British medical journal the Lancet asking for an independent review of Spain’s COVID-19 response.

MarketWatch: What key mistakes did Spain make after the lockdown in the spring, and what must it do now to fix the situation?

Otero: It took a long time to get contact tracing up and running. It should have started when the case curve began to decline. It would have helped to have the disease more controlled at the end of the de-escalation. Each autonomous community set up its own tracking system, many of them insufficiently staffed.

MarketWatch: Will Madrid’s new measures, such as cutting capacity at bars and restaurants, really help get the disease under control?


Johns Hopkins

Otero: I don’t think those measures help much to contain outbreaks. … To have the disease under control, the most important thing at this time is to strengthen the tracking capacity of the national health system. If this is not done soon, the continued increase in outbreaks can eventually overwhelm the tracking capacity of the system and lead to a loss of control and aggravate the situation. National coordination is also very important.

Don’t miss:To defeat COVID-19, ‘we need a unified national strategy,’ says public health expert Dr. Howard Koh

MarketWatch: What are the differences between now and March that are encouraging and discouraging?

Otero: Now there is epidemiological surveillance capacity, although it needs much improvement, for the early diagnosis of cases and contact tracing, and there is the capacity to perform many tests, which allows for detection of a large number of asymptomatic patients. Most of the current cases are young people in whom the disease is less severe, unlike in March-April, and the health system is not under pressure. It is discouraging to observe how certain social groups, mostly young people, are encouraging outbreaks with their behaviors.

MarketWatch: What should other countries learn from Spain?

Otero: Strongly strengthen the epidemiological surveillance system. As soon as possible, start tracking the contacts of the cases and carry out many, many tests, to locate the largest possible number of asymptomatic patients. Make the return to the “new normal” very carefully to avoid new outbreaks. Do not authorize activities that are incompatible with a respiratory pandemic, such as those that involve spending time in closed, poorly ventilated places with many people, parties, nightlife activities. … Raising awareness of the need to take protective measures in homes when they receive visitors, receive them in well-covered rooms, avoid family parties … as it is in homes where the greatest number of infections occurs.

Dr. Vicente Soriano is the director of the UNIR Medical Center in Madrid and a clinician and professor of infectious diseases at the UNIR Health Sciences School and Medical Center.

MarketWatch: What do you think of Madrid’s new measures to try to contain the virus?

Soriano: The confluence of crowding, the return to working activities for many, and easier access to testing — as compared with negligible in March — largely accounts for the new surge in cases. It will go up for the next couple of weeks. Despite, to date, that many new PCR+ diagnoses have been found in young and asymptomatic people, this second wave will soon expand to the whole population, including again the most vulnerable populations. Indeed, although so far the situation at most large Madrid hospitals has not collapsed, it reminds us slightly of what happened in February, when overwhelming began to occur.

MarketWatch: What about contact tracing and other efforts?

Soriano: The advent of rapid antigen tests will be helpful, although there is room for further improvement, testing saliva (instead of nasopharynx fluid), selling in pharmacies, and allowing for self-testing at home, like pregnancy tests, as many times as convenient.

MarketWatch: What else needs to be done?

Soriano: Regional governments need to work further on three areas: (1.) increase the role of primary-care physicians as a first barrier to assess nonseriously ill patients and manage them with the help of telemedicine, avoiding the collapse of hospital emergency departments; (2.) medicalization and ensure enough health-care workers and protective equipment for nursing homes for the elderly and other institutionalized patients — these places accounted for more than 60% of the death toll during the first COVID-19 tsunami wave in Spain; (3.) ensure stocks of diagnostic tests, protective equipment and enough doctors and nurses in clinics and hospitals for confronting the new COVID-19 surge. Acting upfront is always preferable to at the time of demand, when damage has already occurred.

MarketWatch: As a parent, how do you feel about sending your own children back to school?

Soriano: Reopening schools is a critical decision that is supported by the fact that youngsters very rarely become sick and allows parents to continue their jobs. So, I am in favor of reopening schools and therefore let my four children go to school, with the maximum guarantees they have established. I am aware that temporal closing of groups, classes and periodic cases will be reported. Inevitable. But working under this threat is preferable to paralyzing or closing the school.

Read on:Top coronavirus doctor in Spain has a message for revelers and tourists



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What can Zoom do for a sequel to one of the most astounding earnings blowouts of all time?


Zoom Video Communications Inc. enjoyed one of the biggest blowout earnings reports in history in early June, as the COVID-19 pandemic made the company’s name synonymous with videoconferencing and attracted millions of new users to its service.

Zoom’s
ZM,
+1.55%

profit roared more than ten times higher, revenue exploded with 169% growth, and the company doubled its expectations for full-year sales. An analyst on Zoom’s conference call called the quarter perhaps the greatest in enterprise-software history, and Zoom shares — which many believed had run too far heading into that report — have gained more than 80% in the three months since.

For more: Zoom’s astounding quarter shows it expects to be a force even after workers go back to the office

There is only one problem with that type of performance: How do you follow it up ? On Wall Street, an outstanding performance only increases expectations for it to repeat when Zoom reports second-quarter earnings Monday afternoon.

Morgan Stanley analysts reported last week that the “buy-side” expects Zoom to beat consensus estimates by about 30%, even after the company’s forecast for about a half-billion dollars in revenue for the quarter sent analysts’ estimates soaring. And even Morgan Stanley analysts, who are not as bullish on Zoom as other banks with an equal-weight rating on the stock, believe Zoom will meet those expectations — at least for now.

“In general, we think that buy-side expectations for FQ2 (~30% beat) can be achieved and that the company will have flexibility to guide down slightly or flat sequentially, creating little risk heading into the quarter,” the analysts wrote in an Aug. 20 note in which they increased their price target on Zoom to $240 from $190. “However, with buy-side expectations calling for significant continuation of growth trajectory into FY22 and FY23, we are aware that there could be some valuation contraction as sequential growth slows in the back half.”

Analysts cited strong growth in app downloads and users as reasons for yet another strong performance, as well as users signing up for paid plans after getting their feet wet with a free account earlier in the pandemic.

“App downloads [and monthly active users] remain strong and we show a path to F2Q21 revenue well ahead of consensus expectations (and likely buy side expectations as well) serving as a near-term catalyst for additional share appreciation,” RBC Capital Markets analysts wrote in an Aug. 17 note titled “All I Wanna Do is Zoom-A-Zoom-Zoom,” a reference to the early-90s rap hit “Rump Shaker.”

The analysts, who maintained at outperform rating and raised their price target to $300 from $250, said that data from SensorTower shows metrics are seeing “moderation from April peaks yet remain significantly above pre-COVID levels.”

Zoom has also been pushing new initiatives, expanding its Zoom Phone cloud-telephony service to new countries and introducing a hardware-as-a-service offering as well as a Zoom for Home device. While that may not make a material difference immediately, it is additive for the long term and helps Zoom compete against legacy offerings like Cisco Systems Inc.’s
CSCO,
-0.21%

WebEx.

“We also continue to view Zoom Phone as an interesting component of the company’s market opportunity,” William Blair analysts said in a Wednesday note that maintained an overweight rating. “Our industry conversations suggest that continued development around this product, as well as persistent expansion of native international support, is driving competitive wins against legacy solutions as well as modern UCaaS providers.”

While continuing to try to nab customers from competitors, Zoom may already have the largest share of the videoconferencing market. JP Morgan analysts reported on July 31 that Zoom has now captured roughly half of the videoconferencing market just more than a year after its initial public offering.

“Zoom has captured the biggest portion of market share, increasing
from ~34% of total MAU’s back in March, to over 48% as of July 24th,” the analysts wrote while maintaining an overweight rating. ” Google
GOOGL,
+0.67%

GOOG,
+0.61%

also seems to have captured market share, but their offering is free leveraging what we think to be education customers and smaller businesses that are not where we see the biggest long-term opportunity for Zoom.”

What to expect

Earnings: Analysts on average expect adjusted earnings of 45 cents a share, according to FactSet, up from 8 cents a share a year ago, after Zoom guided for adjusted earnings of 44 cents to 46 cents a share. Analysts were predicting 11 cents a share in adjusted earnings ahead of the last earnings report from Zoom.

Estimize, a software platform that crowdsources estimates from hedge-fund executives, brokerages, buy-side analysts and others, reports an average projection of 50 cents a share in adjusted earnings.

Revenue: Analysts on average expect revenue of $500 million, according to FactSet, up from $146 million a year before, after Zoom projected sales of $495 million to $500 million. Analysts were expecting less than $225 million on average before Zoom increased its forecast in early June.

Contributors to Estimize expect revenue of $531.9 million on average.

Stock movement: Zoom stock has increased the day after the company released earnings in three of five instances since the company went public, including both events so far in 2020, when shares increased 7% and 7.6% respectively. The stock overall has more than quadrupled this year, gaining 339.8% as the S&P 500 index
SPX,
+0.67%

has gained 10%.



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COVID-19 forced working mothers to take time off work — rather than fathers


Working mothers got hit with a one-two punch in the early days of the pandemic.

Because child-care demands fell mostly on their shoulders, moms who were lucky enough to keep their jobs were not so lucky in the domestic sphere as shutdown orders kept children home from school, new research by the U.S. Census Bureau and Federal Reserve suggests.

In states with early shutdown orders, mothers took one of two paths, both less than ideal: They temporarily took time off their jobs to care for children, or they worked more hours on nights and weekends while balancing domestic duties, research by U.S. Census Bureau principal economist Misty Heggeness and senior researcher Jason Fields found.

Both options have the potential to create stress and to reduce the quality of a mother’s job performance, which could then hinder future career advancement, Heggeness noted in a previous paper published by the Federal Reserve Bank of Minneapolis.

In some cases, moms were working extra hours to compensate for the lost wages of other working-age adults in the household.

“Trying to balance family life in a pandemic while working more hours than their male counterparts also generates an explosive environment where mothers are vulnerable to increased stress, decreased mental health, and reduced overall wellbeing,” Heggeness wrote.

Workers in states with early shutdowns were 20% more likely than those in states that hadn’t shut down yet to take temporary leave from their jobs, Heggeness wrote in the earlier paper. That rate “appears to be driven solely by mothers who temporarily stopped working,” she said.

Mothers in states where schools and businesses closed early saw a 53.2% increase in taking leave from work. Fathers and women without children saw no significant difference in leave time between early closure and late closure states.

See also: The COVID-19 recession will widen the gender pay gap — but there might be a silver lining

While some research has shown that fathers increased their child-care work during the pandemic, mothers still did the bulk of the labor. That household-level disparity persists, despite broader gains for women in society. For some couples, the question of who should take on child-care duty when schools closed often revolved around which spouse made more money.

In about 70% of married heterosexual couples, wives are the lower-earning spouse, and lower-earning spouses typically leave the workforce to care for children before the higher-earning spouse, previous research has shown.

It’s not enough to strive for gender equity in C-suites and on corporate boards, Heggeness concluded. Those gains don’t mean much if parents, especially mothers, lack affordable child care while they work, she said.

“Without these systems, mommy will forever be stressed and vulnerable to career scarring during any major crisis like this pandemic or any other event that triggers an increase in domestic tasks within her household,” Heggeness wrote.

Heggeness called for a public discussion of plans for affordable, high-quality child care.

Democratic presidential nominee Joe Biden announced a $775 billion plan last month calling for tax credits of up to $8,000 to help low-income and middle-class families pay for child care. President Donald Trump has not announced a child-care proposal as part of his reelection campaign, but earlier this year requested $1 billion in funding for affordable child care in his proposed budget.



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