Peloton (PTON) Earnings for the Fourth Quarter of 2023

The exterior of the Peloton store is seen on February 05, 2022 in Dusseldorf, Germany.

Jeremy Mueller | Getty Images

peloton On Wednesday, it reported a larger-than-expected loss and a quarterly drop in new subscribers that it blamed on its bike seat recall and seasonality, sending shares down about 30% in pre-market trading.

The company didn’t hit analyst earnings estimates but beat sales expectations.

Here’s how the fitness company fared in the fiscal fourth quarter compared to what Wall Street was expecting, based on a survey of analysts conducted by Refinitiv:

  • Loss per share: 68 cents vs. 38 cents expected
  • Revenue: $642.1 million vs. $639.9 million expected

The company reported a net loss of $241.8 million, or 68 cents per share, for the three-month period ended June 30, compared to a loss of $1.26 billion, or $3.72 per share, in the previous year.

Sales fell to $642.1 million, down from $678.7 million in the previous year.

The company’s fiscal fourth quarter, which falls during the summer months, is typically slow for not only Peloton but other fitness retailers as well. Consumers tend to fall back on in-season workouts as they travel and engage in other summer plans.

In May, CEO Barry McCarthy warned that the fourth quarter would be among the most challenging from a growth perspective. For the first time, Peloton predicted a drop in subscribers.

It ended the quarter with 3.08 million subscribers, up 4% year-over-year and in line with the company’s expectations. But compared to the last quarter, the number of subscribers decreased by 29,000. The company attributed this decline to a “seasonal” slowdown in device sales and higher-than-expected volatility.

“Peloton’s fiscal fourth-quarter performance is a reminder that we are running a seasonal business,” McCarthy wrote in a letter to shareholders.

“The slowdown exceeded our expectations during May and through the first three weeks of June as consumer spending shifted towards travel and experiences,” he wrote. “Then eight weeks ago, the trend reversed, and we started seeing hardware sales accelerate.”

Peloton also believes that the recall of its bike seat post, which tended to separate and break unexpectedly during use, resulted in more mess than expected. The metric was 1.4% for the quarter. The company suspects that between 15,000 and 20,000 people decided to pause their monthly subscriptions this quarter while they waited to replace their seats.

McCarthy said the recall, which was announced in May, affected more than 2 million bikes the company had sold since January 2018 and cost $40 million in the quarter, much more than Peloton had expected. So far, the company has received 750,000 seat post replacement requests, which is also more than it expected. To date, Peloton has fulfilled 340,000 orders and expects to finish the rest by the end of September.

Peloton narrowly reached positive free cash flow status on an adjusted basis, but does not expect that to continue over the next two quarters due to expected slowdowns in hardware sales, timing of inventory payments, marketing spend and cash for seat positions. However, it expects to reach positive free cash flow in the second half of fiscal 2024.

Strategy changes on the way to growth

McCarthy, ex Netflix And Spotify The CEO has spent the past three months focusing on new strategies aimed at getting the fitness company back on a path to growth.

The company is wooing customers who don’t have thousands of dollars to spend on a stationary bike or treadmill by offering a rental program and an approved renewal option. The rental service, which was recently launched in Germany, now has more than 48,000 subscribers. The revamped line had 6,500 sales during the quarter.

McCarthy told shareholders that both “are proving to be important initiatives for growth.”

Part of this strategy is to rebrand the company under new CMO Leslie Berland, a former Twitter executive (now known as X). The retailer has positioned itself as a fitness company for everything that goes into its app just as it has with its expensive connected fitness products, like Bike, Tread, and Row.

In May, it unveiled a series of new pricing tiers for its fitness app that includes an unlimited free membership option (no credit card required) and tiers that cost $12.99 and $24 per month. The app allows consumers to view Peloton’s fitness classes and build their own workouts wherever they are, including at their gym.

Since the relaunch, the company has recorded more than 900,000 downloads of the app, more than two-thirds of which are from outside Peloton members. It’s also seeing more purchases for its pricier membership level than expected. It ended the quarter with 256,000 free monthly active users.

Peloton is also seeing “meaningful positive shifts in perception across a range of measures” including gains among Gen Z consumers and others who may be older but are still new to fitness. Peloton is also seeing a shift in the types of people who download its app toward men, Gen Z, and Black and Hispanic consumers.

As part of the rebranding, McCarthy said, Peloton has begun offering a variety of “limited-edition bicycle tire colors and graphics to both the consumer and commercial markets.”

“For the past 10 years, Peloton has been the Henry Ford of stationary bikes,” he told shareholders. “We’ve sold any colored bike frame you want as long as you want black.” “I’m excited to announce a change in strategy…and we expect to hear more about this exciting initiative this fall.”

Peloton is also leaning towards its business strategy to increase revenue and attract new customers. And earlier this month, it announced the launch of Peloton for Business, which allows companies to provide access to the app and related fitness products through its benefits offering.

Customers include Volvo, which has Peloton bikes in its corporate fitness center and offers employees access to the Peloton app, full access memberships and discounts on devices including Bike, Bike+, Tread and Guide. Dropbox offers a similar package for its employees.

Peloton also launched a new program aimed at partnering with NCAA Division 1 schools. The new strategy kicked off Tuesday with the announcement that it will partner with the University of Michigan to create co-branded Peloton bikes that will be used in the school’s various fitness facilities — and along the sidelines on a ballpark. School football, otherwise known as the Big House.

“We expect to hear more announcements about additional global partners in the coming weeks,” McCarthy said.

It also launched a new discounted offer for college students from the “One” level, which normally costs $12.99 per month but will be reduced to $6.99 per month.

Read the full earnings release here.

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