Peloton’s shares plunged by about 20% during Thursday morning’s trading session. The company’s financial results for the fiscal second quarter did not meet the expectations of Wall Street analysts, resulting in a loss per share of 54 cents compared to the anticipated 53 cents, and revenue of $743.6 million compared to the estimated $733.5 million. Peloton reported a net loss of $194.9 million, or 54 cents per share, for the three-month period ending on Dec. 31, down from a loss of $335.4 million, or 98 cents per share, from the previous year. Sales also decreased to $743.6 million from $792.7 million in the prior year.
The company also provided a pessimistic outlook for the current quarter and a muted sales forecast for the full year. For its fiscal third quarter, Peloton expects sales to be in the range of $700 million to $725 million, below the Wall Street estimate of $754 million. Additionally, the company expects its adjusted EBITDA loss to range between $20 million and $30 million, in contrast to analyst estimates of a $2 million loss. In a letter to shareholders, finance chief Liz Coddington expressed caution about the company’s ability to efficiently grow its Paid App subscribers and the performance of new initiatives, citing an uncertain macroeconomic outlook.
Peloton’s connected fitness subscription guidance exceeded expectations, and the company observed robust sales at retail partners like Dick’s Sporting Goods and Amazon. Demand for its Tread+ also exceeded projections, as the company managed to achieve a gross profit on its connected fitness products for the second consecutive quarter, despite historically experiencing losses in this segment. Despite some progress, Peloton still fell short of CEO Barry McCarthy’s targets.
McCarthy aimed to return the company to revenue growth within a year of his tenure, but Peloton did not meet this goal and now anticipates achieving it by the end of the current fiscal year. Additionally, the company failed to reach sustained positive adjusted EBITDA within a year, and now expects to generate positive free cash flow by the end of the fiscal fourth quarter.
Peloton’s sales of hardware products are expected to remain subdued, impacting free cash flow, and its Bike rental program has contributed to reduced cash flow due to the deferred receipt of full payments upfront. Nevertheless, the company accomplished several other objectives, such as expanding its corporate wellness and commercial partnerships, divesting its Ohio manufacturing facility, and revamping its retail store network.
While the sales growth through retail partnerships was impressive, Peloton’s Bike rental program performed well, with a projected 100% year-over-year revenue growth for fiscal 2024. The demand for Tread+ exceeded expectations, but McCarthy expressed uncertainty about future demand and the company’s ability to fulfill it. He emphasized the need for continued momentum in the treadmill category to drive future growth.
McCarthy acknowledged that not taking risks and experiencing failures on new initiatives indicates a lack of aggressiveness in testing and innovating. Despite some setbacks, Peloton is confident in the potential for growth in the treadmill category and the positive reception of the Bike rental program. However, challenges with customer service during the holiday season tainted the company’s brand, prompting efforts to improve the Member Support experience.
The company is in the process of rebooting its approach to customer service, with new leadership, systems, third-party vendors, training, and staff, to enhance the level of service provided to its members. Peloton also plans to discontinue its partnerships with universities after lower-than-anticipated sales to alumni and boosters. McCarthy is optimistic about the company’s future, focusing on the potential for growth in the treadmill market and the continued development of Peloton’s products and services.
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