From its IPO in September of 2019 at $25.24, Peloton Interactive, Inc. (PTON) ha

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From its IPO in September of 2019 at $25.24, Peloton Interactive, Inc. (PTON) has seen its fortunes tied to the SARS-CoV-2 pandemic. The stock closed as high as $162.72 per share in December of 2020, only to fall back to $24.60 in January of 2022.
Short selling is something investors do when they think the price of a security will go down rather than up. It’s done by borrowing shares from a broker and then selling those shares. The short-seller then holds the cash and when the price declines, buys back the shares of stock and returns them to the broker (along with interest on this ‘loan’).
Here is what the L1 Capital Long Short Fund Limited had to say about Peloton Interactive, Inc. in its Q4 2021 investor letter:
“Peloton (Short -59%) shares collapsed in November after announcing a large reduction in its June FY22 revenue guidance as part of its first quarter trading update. This was the second consecutive downgrade after the company’s below-consensus update with its FY21 results. Peloton is a connected exercise equipment manufacturer with a cult following in the U.S. The company has been a significant COVID-19 beneficiary with stay-at-home orders dramatically increasing the demand for at-home exercise bikes. We began shorting the company in August 2021 (before the above-mentioned downgrades), when it was trading at ~US$110-120. Our view was that the U.S. was poised to reopen and interest in at-home fitness was diminishing. We saw competitors aggressively enter the market with new offerings at the same time as Peloton’s new treadmill product was marred by significant product issues. We also thought Peloton’s aggressive revenue recognition policies would exacerbate a potential demand slowdown, with small changes in subscriiptions having a large impact on upfront revenue and profit generation. The softer demand outlook played out as we expected and the stock price collapsed, which enabled us to cover our short around US$52 per share.”
Required:
1) Decompose Peloton’s ROE into its component ratios by quarter, as we did in class.
2) Discuss the overall patterns you see (ignoring seasonality).
3) Compute the same-quarter to same-quarter percentage changes in:
• Revenues
• Cost-of-revenues
• Gross profit
4) Compute the calendar quarter to next calendar quarter changes in:
• Revenues
• Cost-of-revenues
• Gross profit
• Income (loss) from operations
5) What do you see that would have prompted L1 Capital to short Peloton’s stock?
6) What do you think prompted L1 Capital to ‘cover’ its short position (i.e. buy back the shares it had sold in order to complete the transaction) at $52 ?
Below is an Excel object containing PTON’s recent financial data. Double-clicking on the image will open a spreadsheet where you can perform your mathematical analysis.

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