Peloton shares tumble after company offers weak holiday quarter outlook

Earnings

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Brody Longo works out on his Peloton exercise bike on April 16, 2021 in Brick, New Jersey.
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Peloton posted a wider-than-expected loss for its fiscal first quarter, as a steep decline in connected fitness products revenue outweighed an increase in subscription revenue.

The company’s shares fell more than 17% in premarket trading Thursday. As of Wednesday’s close, Peloton’s stock has dropped about 75% so far this year.

Here’s how the fitness device maker performed compared with Wall Street estimates, according to Refinitiv.

  • Loss per share: $1.20 vs. 64 cents, expected
  • Revenue: $616.5 million vs. $650.1 million, expected.

Revenue fell 23% compared with the same period last year. Peloton’s revenue outlook for the holiday quarter, between $700 million and $725 million, would mark a quarter-to-quarter increase, but it’s well below analysts’ estimates of $874 million.

“Given macro economic uncertainties we believe near-term demand for Connected Fitness hardware is likely to remain challenged,” the company said.

Peloton CEO Barry McCarthy said in an earnings announcement Thursday that the company’s turnaround is a “work in progress.” The company has been struggling with the end of pandemic-era demand, when lockdowns spurred growth in at-home exercise. This year, the company undertook significant leadership changes, mass layoffs and a new business strategy under McCarthy. The company has pushed beyond its direct-to-consumer roots into deals with other retailers and into a model that emphasizes subscriptions.

“The ship is turning,” McCarthy, a former Spotify and Netflix executive, said Thursday.

Co-founder and former CEO John Foley left his board chair position in September along with co-founder and Chief Legal Officer Hisao Kushi, shortly followed by Peloton’s head of marketing, Dara Treseder. Foley had stepped down from his role as CEO in February, when he was succeeded by McCarthy.

McCarthy has helmed a broad turnaround effort for the company. He oversaw thousands of layoffs, including 500 jobs which were culled in early October. The cost-cutting efforts were paired with new initiatives to sell more bikes and increase Peloton’s digital subscribers.

Subscription revenue increased to $412.3 million from $304.1 million last year. Meanwhile, revenue from connected fitness products declined to $204.2 million from $501 million. Peloton’s gross margin, 35.2%, was largely in line with expectations and a drastic improvement from the negative 4.4% in the preceding quarter.

Peloton reported 6.7 million total members, up from 6.3 million last year, but down from 6.9 million the prior quarter. McCarthy has said that the company hopes to someday reach 100 million members.

The company also touted improvement in its free cash flow, which was negative $246.3 million, compared with $411.9 million in the previous quarter and negative $651.9 million in the year-ago period. Peloton has said it hopes to be near break-even on this by the latter half of the fiscal year.

Among McCarthy’s recent initiatives was Peloton’s decision to sell bikes and treads through Amazon and Dick’s Sporting Goods. The company also began certifying pre-owned bikes and expanded its bike rental program nationwide. And, in a partnership with Hilton, the company is set to put bikes in the fitness centers of around 5,400 hotels nationwide.

The first quarter also saw the release of Peloton’s $3,195 rowing machine. More recently, the company extended its refund period for its recalled Tread+ treadmill, which was recalled over multiple user injuries and a death.

The company reported $199 million in first quarter recall reserves, restructuring and impairment expenses as it continues embarking on its turnaround.