Peloton shares tank after cycle maker posts disappointing earnings and outlook; cuts Bike price

Peloton said Thursday its fiscal fourth quarter loss widened as as the pace of revenue growth slowed dramatically and costs associated with a treadmill recall mounted.

Peloton warned its earnings will be hurt in the near term because it’s slashing the price of its original bike by about 20%. It’s also beginning to shift its business mix back toward treadmill sales, which are less profitable than those of its cycles. It also faces heightened commodity costs and freight prices, while it plans to ramp up marketing spending in the months ahead.

The company offered up a disappointing first-quarter revenue outlook.

Here’s how Peloton did for the quarter ended June 30 compared with what Wall Street was expecting, using a survey of analysts by Refinitiv:

• Loss per share: $1.05 vs. 45 cents expected
• Revenue: $936.9 million vs. $927.2 million expected

Peloton posted a net loss of $313.2 million, or $1.05 per share, compared with net income of $89.1 million, or 27 cents a share, a year earlier. That came in larger than the 45-cent loss forecast by analysts polled by Refinitiv.

Total revenue grew 54% to $936.9 million from $607.1 million a year earlier, topping estimates for $927.2 million. But the pace of growth slowed from the third quarter when sales more than doubled from year-ago levels and topped $1 billion.

Growth tapered off, in part, due to Peloton recalling both its Tread and Tread+ treadmill products in May, and temporarily halting sales of the machines. Its less expensive Tread is set to go on sale next week. The company has not yet said when it will resume sales of the Tread+.

But the cycle maker also faces stiffer competition from other at-home fitness businesses, such as Hydrow, Tonal and Lululemon-owned Mirror. And as pandemic restrictions are lifted, more consumers are opting to head back to the gym or take in-person group classes.

“The past year represented an inflection point for the connected fitness industry, with significant increases in awareness and demand following the onset of the Covid-19 pandemic,” Chief Executive John Foley wrote in a letter to shareholders.

Revenue from Peloton’s connected fitness segment, which includes contributions from the company’s acquisition of Precor, rose 35% year over year to $655.3 million, representing 70% of total revenue. Subscription revenue was up 132% to $281.6 million.

Peloton ended the quarter with 2.33 million connected fitness subscribers, a 114% increase from a year earlier. Connected fitness subscribers are people who own a Peloton product and also pay a monthly fee for access to the company’s digital workout content. 

Digital subscriptions — which don’t require equipment — were up 176% to more than 874,000, boosted by free trials, the company said.

Average net monthly connected fitness churn, which Peloton uses to measure retention of connected fitness subscribers, ticked up to 0.73% from 0.52% a year earlier. Peloton’s churn rate had hit a six-year low of 0.31% in the prior quarter. The lower the churn rate, the less turnover Peloton is seeing with its user base. 

Average monthly workouts per connected fitness subscriber, meantime, fell to 19.9 from 24.7 a year earlier. The company said the decrease was expected due to seasonal trends — fewer people breaking a sweat indoors during the summer months — and more people emerging from their homes amid the health crisis.

In its fiscal first quarter, Peloton is forecasting sales to reach $800 million, well below the $1.01 billion that analysts had been looking for.

The outlook takes into account the reduction in the price of the Bike and a “modest” revenue contribution from the Tread, Peloton said.

It anticipates having 2.47 million connected fitness subscriptions by the end of the quarter, with an average monthly churn rate of about 0.85%.

For the year, Peloton sees sales hitting $5.4 billion and connected fitness subscribers growing to 3.63 million. That’s ahead of consensus estimates for $5.27 billion.

Find the full earnings press release from Peloton here.

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