Peloton‘s shares plummeted Thursday after the corporate reported a wider-than-expected loss within the fiscal third quarter and acknowledged an uncertain economic backdrop.
Shares were down about 13% in pre-market trading.
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Yet the corporate pointed to signs of progress with its turnaround plan. It said connected fitness subscriptions grew and free money flow losses declined. It also said latest initiatives have resonated with customers, including a push to sell lower-priced, pre-owned bikes and a rent-to-buy program for fitness equipment.Â
Here’s how the connected fitness equipment company did within the three months that ended March 31 compared with what Wall Street was anticipating, based on a survey of analysts by Refinitiv:
- Loss per share: 79 cents vs. 46 cents expected
- Revenue: $749 million vs. $708 million expected
Peloton’s net loss for the period was $275.9 million, or 79 cents per share, compared with a lack of $757.1 million, or $2.27 per share, a 12 months earlier. It marked the ninth quarter in a row of the corporate reporting losses.
Revenue declined 22% from a 12 months ago, dropping from $964.3 million.
The fitness company has sought to stabilize its business and discover a path to profitability again, after seeing a pointy reversal of fortunes. Sales of its bikes and treadmills slowed dramatically after a pandemic-related surge, forcing Peloton to lean into other revenue sources like subscriptions.
The corporate ended its third quarter with about 3.1 million connected fitness subscriptions, up 5% from the year-ago period. Connected fitness subscribers are individuals who own a Peloton product, comparable to its Bike or Tread, and pay a monthly fee for access to live and on-demand workout classes.
Average net monthly connected fitness churn ticked up barely from a 12 months ago, too. It got here in at 1.1% for the quarter, consistent with the prior quarter, but above the year-ago churn level of 0.8%.
Peloton’s overall membership, nevertheless, didn’t grow. It ended the quarter with 6.7 million total members, similar to the tip of the prior quarter and down from 7 million within the year-ago period.
In a letter to shareholders, CEO Barry McCarthy said Peloton is looking toward the long run. The corporate later this month will relaunch the brand and introduce a new edition of the Peloton app with a tiered membership structure, he said.
McCarthy added the relaunch goals to shake up how people view Peloton, so that they consider its wide range of fitness offerings — not only its well-recognized bikes.
Yet he warned of challenges ahead. He said the corporate typically experiences a seasonal decline in subscriber growth within the fourth quarter, which stretches across summer months. He said he expects one this 12 months, too.
“Notwithstanding the relaunch, Q4 can be amongst our most difficult from a growth perspective,” he said.
Within the fiscal fourth quarter, Peloton expects connected fitness subscriptions to rise, but revenue to drop. It said it expects revenue to say no by about 6% year-over-year to a variety of between $630 million and $650 million, compared with $678.7 million the year-ago period.
It expects to finish the fourth quarter with 3.08 million to three.09 million subscribers, up from 2.97 million within the year-ago period.
Individually, Peloton announced Thursday that it had reached an agreement with Dish Technologies over a patent dispute. The corporate said it can pay Dish $75 million to settle an International Trade Commission grievance.
The corporate had previously said it aimed to achieve break-even money flow on a quarterly basis within the second half of its fiscal 12 months 2023. McCarthy said within the letter Thursday that the settlement will significantly pressure free money flow in the present fiscal quarter.
He added that the temporary hit is worth it since it “eliminates a cloud of uncertainty and an infinite distraction to the day-to-day operation of our business.”
McCarthy’s deal with a turnaround follows a tumultuous stretch after the corporate’s post-pandemic surge.
The struggles forced the corporate to chop costs last 12 months by shedding hundreds of employees, shuttering lots of its stores and outsourcing its last-mile delivery and manufacturing. Its co-founder and former CEO John Foley also stepped down last 12 months and later resigned as executive chairman.
As fitness equipment sales proceed to lag, Peloton has focused on other ways to drive growth and attract latest customers. Under McCarthy, a former Spotify and Netflix executive, the corporate has emphasized increasing subscriptions.
The corporate has tried to nudge sales of apparatus by tinkering with prices, offering a rental option and adding rowing machines to its lineup. It got into wholesale by allowing Amazon and Dick’s Sporting Goods to hold its equipment. Peloton also struck a cope with Hilton to place bikes in all of its U.S. hotels.
Within the shareholder letter on Thursday, McCarthy said those efforts are working.
Because the company began testing its rent-to-buy program in March 2022, it has grown to 47,000 subscribers, he said. It has a mean monthly churn rate of 5%, which is higher than Peloton’s overall churn rate.
Yet McCarthy said the choice, which allows customers to make rental payments and chip away on the equipment’s purchase price, reduces a barrier to sign ups. He cited an internal survey, which found that 62% of respondents wouldn’t have subscribed if it weren’t for the flexibleness of the rental program.
Peloton’s sales of pre-owned bikes has also resonated, he said. The corporate launched that offering in December and is considering adding its treadmills and rowers to this system later this 12 months.
Together, the 2 programs accounted for twenty-four% of connected fitness hardware sales within the fiscal third quarter, he said.
Peloton’s stock has risen about 11% up to now this 12 months. Yet its shares are still lower than half of its 52-week high of $18.86 — and only a tiny fraction of their over $100 highs throughout the early years of the pandemic.
Peloton’s market cap is $3.06 billion, after reaching as high as almost $50 billion in early 2021.
