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pelotonShares of the company fell on Thursday after the company reported a larger-than-expected loss for the fiscal third quarter and acknowledged an uncertain economic backdrop.
Shares of the company fell 14% in afternoon trading.
However, Peloton has indicated signs of progress on the turnaround plan. It said connected fitness subscriptions grew and free cash flow losses decreased. She also said the new initiatives have resonated with customers, including payment to sell lower-priced pre-owned bikes and a rental program to buy them fitness equipment.
Here’s how the connected fitness equipment company performed in the three months ended March 31 Compared to what Wall Street was expecting, based on a survey of analysts by Refinitiv:
- Loss per share: 79 cents vs. 46 cents expected
- Revenue: $749 million versus the expected $708 million
Peloton’s net loss for the period was $275.9 million, or 79 cents per share, compared to a loss of $757.1 million, or $2.27 per share, a year earlier. This was the ninth consecutive quarter in which the company reported a loss.
Revenue was down 22% from a year ago, down from $964.3 million.
The fitness company has sought to stabilize its business and find a path to profitability again, after witnessing a sharp reversal of fortunes. Sales of its bikes and treadmills slowed dramatically after the Covid pandemic hit, forcing the peloton to rely on other sources of income such as subscriptions.
The company ended the third quarter with about 3.1 million connected fitness subscriptions, up 5% from the year-ago period. Connected Fitness subscribers are people who own a Peloton product, like a Bike or Tread, and pay a monthly fee to access live and on-demand workout classes.
The average monthly connected fitness rate is up slightly from last year, too. It came in at 1.1% for the quarter, consistent with the previous quarter, but above last year’s turbulent 0.8%.
However, the peloton’s overall membership did not grow. It ended the quarter with a total of 6.7 million members, the same number at the end of the previous quarter and down from 7 million in the same period last year.
In a letter to shareholders, CEO Barry McCarthy said Peloton is looking to the future. He said the company will relaunch the brand later this month and introduce a new version of the Peloton app with a tiered membership structure.
McCarthy added that the relaunch aims to change how people view Peloton, so they’re considering a variety of fitness offerings — not just its well-recognized bikes.
However, he warned of the challenges ahead. He said the company typically sees a seasonal dip in subscriber growth in the fourth quarter, which extends through the summer months. He said he’s expecting one this year, too.
“Despite the relaunch, the fourth quarter will be among our most challenging from a growth perspective,” he said.
In the fiscal fourth quarter, Peloton expects connected fitness subscriptions to rise, but revenue to decline. It said it expects revenue to decline about 6% year-over-year to a range of $630 million to $650 million, compared to $678.7 million in the year-ago period.
It expects the fourth quarter to have 3.08 million subscribers to 3.09 million, up from 2.97 million in the same period last year.
On an earnings call, McCarthy said consumers have continued to spend, but said it is difficult to predict their behavior as economists discuss the possibility of a recession, or a “soft landing.” He said the debate in Congress about raising the debt ceiling, or risking a default on US debt for the first time, adds to the uncertainty.
Separately, Peloton announced Thursday that it has reached agreement with Dish Technologies over a patent dispute. The company said it would pay Dish $75 million to settle a complaint with the US International Trade Commission.
The company had previously said it aimed to reach breakeven cash flow on a quarterly basis in the second half of fiscal 2023. McCarthy said in the letter Thursday that the settlement would significantly squeeze free cash flow in the current fiscal quarter.
He added that the temporary strike is worthwhile because it “removes a cloud of uncertainty and a huge distraction from the day-to-day operations of our business.”
McCarthy’s focus on turnaround comes after a turbulent period following the company’s post-pandemic rally.
Conflicts forced the company to cut costs last year by laying off thousands of employees, closing many of its stores, and outsourcing last-mile delivery and manufacturing. Its co-founder and former CEO, John Foley, also stepped down last year and later stepped down as CEO.
With fitness equipment sales still lagging, Peloton has focused on other ways to drive growth and attract new customers. Under the leadership of McCarthy, a former Spotify and Netflix executive, the company has emphasized increasing subscriptions.
Subscriptions have become the company’s biggest business driver — making up nearly 60% of all revenue in the three-month period. This was the fourth consecutive quarter that subscription revenue exceeded hardware revenue.
The company attempted to drive equipment sales by adjusting prices, offering a rental option, and adding rowing machines to its lineup. I entered the sentence with permission Amazon And Dick’s Sporting Goods to carry their equipment. Peloton also struck a deal with Hilton to put bicycles in all of its hotels in the United States.
In a shareholder letter Thursday, McCarthy said those efforts are paying off.
He said that since the company began testing the rent-to-buy program in March 2022, the number of its subscribers has grown to 47,000. The average monthly rip rate is 5%, which is higher than the overall rip rate in the peloton.
However, McCarthy said the option, which allows customers to make lease payments and reduce the purchase price of equipment, lowers the barriers to subscriptions. He cited an internal survey, which found that 62% of respondents would not have signed up without the rental program’s flexibility.
Peloton’s sales of pre-owned bikes have also resonated, he said. The company launched this offer in December and is considering adding treadmills and rowing machines to the program later this year.
He said the two programs together accounted for 24% of connected fitness device sales in the fiscal third quarter.
Third-party sales are also gaining traction, he said, and the company plans to expand its portfolio with Amazon and participate in its promotional events such as Prime Day.
Peloton stock is up about 11% so far this year. However, its shares are still less than half of their 52-week high of $18.86 — and a very small fraction of the over-$100 highs during the early years of the pandemic.
Peloton has a market capitalization of $3.06 billionAnd Having reached nearly $50 billion in early 2021.
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