Peloton Interactive
‘s latest earnings report and financial outlook sent shares of the at-home fitness firm sinking to their lowest levels on record.
Peloton
(ticker: PTON) said in a letter to shareholders Wednesday that subscribers declined by 29,000 from the previous quarter to 3.08 million. In May, Peloton had warned investors that it expected subscribers to drop in the quarter because fewer people purchase workout equipment in the warmer months. But the actual drop-off was larger than the firm expected.
“The slowdown exceeded our expectations through May and through the first three weeks of June as consumer spending shifted toward travel and experiences,” Chief Executive Barry McCarthy wrote in the letter.
Hardware sales began to reaccelerate eight weeks ago, McCarthy said. Asked on the earnings call what sparked the trend, McCarthy said he doesn’t have enough insight to the cause and effect to give a thoughtful answer. He said he imagined macroeconomic forces and seasonality could be at play.
“If I did [have an answer], we could lean into it and try to leverage it,” McCarthy said, according to a transcript provided by Sentieo. “But the trend seems to be holding. Now, for how long and what the slope of the line be, I don’t know the answer to that either. I wish I did.”
Peloton shares were down 20% to $5.56 in Wednesday trading. That would be a record low close for the stock, which began trading in September 2019. It would be Peloton’s largest decline since Jan. 20, 2022, according to Dow Jones Market Data. Peloton shares have tanked 97% from their closing high of $167.42 on Jan. 13, 2021.
Shares are down 85% since McCarthy took over as CEO in February 2022. McCarthy replaced founder John Foley, who stepped aside as investors sought steep cuts to turn around business after the Peloton overspent on manufacturing capacity while chasing pandemic-driven demand.
Peloton also said that a seat recall it announced on May 11 will cost $40 million more than it expected, and that 15,000 to 20,000 people affected elected to pause their monthly subscriptions while waiting to receive a replacement part.
The company reported a fiscal fourth-quarter loss of 68 cents a share on revenue of $642.1 million. Analysts surveyed by FactSet were expecting the maker of exercise equipment to report a fourth-quarter loss of 40 cents a share on revenue of $641 million.
Peloton added that it achieved positive free cash flow in the fourth quarter, but said that as a result of factors like the seasonality of hardware sales and marketing costs, it doesn’t anticipate to remain cash-flow positive in the two upcoming quarters.
“Our forecast is really A Tale of Two Cities,” McCarthy said on the call. “The second half of the year looks quite a bit different than the first half. We don’t have very aggressive growth assumptions, in my view, but we need to achieve the growth we’re forecasting in order to be able to generate the financial performance that we’re forecasting. If we do those things, the metrics in the last quarter of the year, in particular, are pretty stellar.”
For the current quarter, Peloton expects revenue of between $580 million to $600 million, compared with the FactSet consensus of $647 million. Peloton also estimated it will have between 2.95 million and 2.96 million connected fitness subscribers in the first quarter, while analysts have been expecting 3.08 million.
The company ended the quarter with $813.9 million in cash and cash equivalents, down from $1.25 billion at the end of June 2022. The company has roughly $1.7 billion in debt, according to FactSet.
Write to Angela Palumbo at [email protected]
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