Peloton (PTON) reports Q4 2022 losses mount


A person walks past a Peloton store on January 20, 2022 in Coral Gables, Florida.

Joe Raedle | Getty Images

Peloton Thursday reported increasing losses and declining sales in its fiscal fourth quarter as the connected fitness equipment maker tries to win back investors with cost cuts and strategic shifts.

Shares fell more than 15% in premarket trading, a day after the stock rose more than 20% following news of its partnership with Amazon.

It marks Peloton’s sixth straight quarter of reported losses. The company said it aims to achieve quarterly breakeven cash flow in the second half of fiscal year 2023.

Still, Peloton CEO Barry McCarthy said he expects the connected fitness market to remain challenging for the foreseeable future as consumer demand for home exercise machines slows from pandemic highs.

Since McCarthy took over as CEO from Peloton founder John Foley in February, the company has made significant changes that have not yet fully paid off. Peloton raised membership fees, raised the prices of some equipment, laid off thousands of workers, tested a rental option, abandoned last-mile deliveries and turned all production over to third parties. On Wednesday, Peloton also began selling some of its products on Amazon in the United States, the first such deal with another retailer.

“The naysayers will be watching us” [fourth quarter] financial performance and see a melting pot of declining revenues, negative gross margin and increased operating losses,” McCarthy wrote in a letter to Peloton shareholders.

“But what I see is significant progress that drives our comeback and long-term Peloton resilience,” he said. “We still have work to do.”

Peloton offered no guidance for the upcoming fiscal year 2023. For the first quarter, it said subscribers remain stable and revenue is between $625 million and $650 million. Peloton said this takes into account weak short-term demand and seasonal fluctuations for the company.

There was a bright spot for the company: This was Peloton’s first reported quarter, where higher-margin subscription revenue made up the bulk of total revenue.

losses mount up

Peloton’s net loss increased for the three-month period ended June 30 to $1.24 billion, or $3.68 per share, from a loss of $313.2 million, or $1.05 per share, a year earlier.

McCarthy said the losses were a result of Peloton’s efforts to avoid overstocking, reduce overheads and address other supply chain issues. The company embarked on an $800 million restructuring plan earlier this year. Peloton ended the fourth quarter with $1.1 billion in inventory.

Revenue fell 28% to $678.7 million, from $936.9 million a year earlier. That was less than the $718.2 million that analysts were looking for, according to Refinitiv estimates.

Within that figure, connected fitness revenue, including the contribution from Peloton’s Precor business, declined 55% to $295.6 million.

Peloton’s connected fitness gross margin was another bleak point, at a negative 98.1% compared to a positive 11.7% a year earlier. Peloton said it faced higher logistics costs per delivery, higher port and storage costs, plus costs related to the recall of its Tread+ treadmill machine.

Peloton posted $383.1 million in subscription revenue, up 36% from the prior year and representing 56.4% of total company revenue.

McCarthy, who previously worked at Netflix and Spotify, has made it clear that he is more interested in pursuing growth on the subscription side of Peloton’s business, rather than putting such an emphasis on hardware. He believes Peloton’s digital app will be at the heart of the company’s future success.

Membership is declining

Peloton closed its last quarter with 2.97 million affiliate fitness subscriptions, about the same as last quarter’s level and up 27% from a year ago. Connected fitness subscribers are people who own a Peloton product, such as the original Bike, and also pay a monthly fee to access live and on-demand workout classes.

However, the total number of members decreased by about 143,000 people from the previous quarter to 6.9 million. Following Foley’s initial vision, McCarthy has said that the company hopes to one day reach 100 million members.

Peloton’s average net monthly churn levels for affiliate fitness users rose to 1.41% from 0.73% a year ago.

The company said this exceeded its internal expectations, in part as a result of a consumer protection ruling in Canada that forced all customers in the country to approve the subscription price increases that took effect in June, and about 85% of them have so far. done. Peloton said it expected some people to drop their memberships after prices rose.

But investors may be wary of the jump. A lower churn rate would be better news for Peloton, as it means people stick around and keep paying for their membership.

McCarthy said in the letter to shareholders that the fourth quarter should prove to be the “high watermark” for write-downs and restructuring costs related to inventory and supply chain challenges. It should also be the start of Peloton’s comeback story, he said.

Peloton shares are down about 60% so far since the market closed on Wednesday.

This story is evolving. Come back for updates.

The Valley Voice
The Valley Voice
Christopher Brito is a social media producer and trending writer for The Valley Voice, with a focus on sports and stories related to race and culture.


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