With most of the major technology firms having already announced their earnings, investors will this week turn their focus to a couple of smaller players who need to show that their businesses are still in a growth mode and their shares are worth a long-term bet despite setbacks in recent months.
Below are two companies which we are focusing on from this group:
1. Peloton Interactive
Peloton Interactive Inc (NASDAQ:PTON) will report its quarterly earnings on Tuesday Nov. 5 before the market opens. This will be the first earnings report from the New York-based company, known for its high-end exercise bikes, since it went public at the end of September.
Analysts, on average expect a loss of $0.36 a share on sales of $199.06 million. The shares have taken quite a wild ride since they began trading, as investors show their ambivalence for companies that have not yet shown a clear path to profitability.
Closing at $24.99, even after surging 4.6% on Friday, the stock is still down almost 14% from the IPO offering price of $29 per share in September. One of the biggest concerns that investors would like to see addressed in tomorrow’s earnings call is how Peloton is holding up in an environment when there is a lot of competition entering this segment of the market.
Peloton exercise bikes, which cost $2,000 plus subscription plans, have attracted a lot of users in the company’s target market: households earning over $50,000 a year.
“Further robust growth and scale will be required to achieve long-term subscriber margins and, ultimately, profitability,” Michael Kawamoto, an analyst covering Peloton for D.A. Davidson, wrote in a note following Peloton's IPO.
In a recent lawsuit Peloton filed against competitor Echelon Fitness LLC, it accused the respondent of flooding the market “with cheap, copycat products” while waging a false-advertising campaign to undercut Peloton’s business.
2. Square
Payment processing company, Square Inc (NYSE:SQ) reports its quarterly earnings on Wednesday Nov. 6. Analysts are expecting $0.2 a share profit on sales of $597.24 million.
The San Francisco-based financial-technology company, which was founded and run by Twitter Inc (NYSE:TWTR) Chief Executive Jack Dorsey, has a consistent history of beating expectations and it won’t be a surprise if it does so again this week.
But the recent moves in its share price suggest some investors may be having second thoughts about the future growth prospects. Its stock, despite trading up 1.9% at $62.60 at the Friday close, has lost a quarter of its value since July.
Susquehanna Financial Group’s analyst, James Friedman said in a research note this month that decelerating margin expansion and a slowdown in gross payment volume growth are among the issues weighing on the stock.
Nomura Instinet analyst Bill Carcache had a more pessimistic view on Square, saying its stock is overvalued because some investors view it as a software play and not in line with its payments industry peers.
Decreasing gross payment value growth is a result of increased competition as Square attempts to serve larger merchants, Carcache wrote. He also said the efficiency of Square’s investment spending appears to be declining as revenue growth slows, arguing it is difficult to see how the company’s investment cycle will produce a margin improvement after it sold its food delivery service Caviar in August.
Bottom Line
Intensifying competition, faltering growth and burgeoning questions over both companies' future prospects have concerned and disappointed investors over the last couple of months. Despite Peloton's Friday gain, the stock is still well below its IPO price and investors now need to see a clear plan for profitability, while Square has yet to demonstrate it can revitalize revenues and boost its margins — essential if it is to allay investor cynicism any time soon.