Peloton’s losses narrow as subscription revenue outpaces equipment sales again

Peloton's losses narrow as subscription revenue outpaces equipment sales again

Brody Longo works out on his Peloton exercise bike on April 16, 2021 in Brick, New Jersey.

Miguel Loccisano | fake images

platoon said Wednesday that it is reduced net loss year-over-year, and for the third consecutive quarter, subscription revenue outpaced sales of the company’s connected fitness products.

Chief Executive Officer Barry McCarthy called the results a potential “turning point” for the company, which has spent much of the past year executing an aggressive recovery strategy.

The fitness equipment company’s fiscal second-quarter revenue beat Wall Street expectations, but the company posted higher-than-expected loss per share. Peloton shares were up about 7% in premarket trading.

Here’s how Peloton fared in the three months ending December 31 compared to what Wall Street was anticipating, according to a survey of analysts conducted by Refinitiv:

  • Loss per share: 98 cents vs. 64 cents expected
  • Revenue: $792.7 million vs. $710 million expected

The company’s reported net loss for the three-month period ended December 31 was $335.4 million, or 98 cents per share, compared to a loss of $439.4 million, or $1.39 per share, a year before. while it is the eighth quarter in a row the exercise company has reported losses, it’s the smallest loss Peloton has marked since its fiscal fourth quarter of 2021.

Revenues fell 30% compared to the period of one year ago but it exceeded the company’s expected range of $700 to $725 million. Sales of connected fitness products, which are typically strong during Peloton’s holiday quarter, fell 52% year-over-year, while subscription revenue increased 22%.

“This is the time of the year where if we’re going to sell a lot of hardware, you’d expect there to be a lot of hardware-related revenue, and you hope that maybe that revenue will exceed subscriptions,” McCarthy told CNBC. “He didn’t. That’s why in the letter [to investors]I call it as it may be a turning point.”

In his letter to investors, McCarthy said he expects the trend to continue.

The company ended the quarter with 6.7 million total members and 3.03 million connected fitness subscriptions, an increase of 10% compared to the same period last year. The company had 852,000 subscribers to its app, a 1% drop compared to the same period last year. He has a goal of getting 1 million people to sign up to try his app over the next year.

Peloton is losing money on Bikes, Treads and other machines, but its subscription business has once again kept its overall margins above water. Gross margins for its connected fitness products were negative 11.2%, but gross margins for subscription sales were 67.6%. Total gross margin was 29.7%, compared to 24.8% in the same period of the previous year. However, it was down from the prior quarter, due in part to increased promotions in the holiday quarter.

Peloton expects lower revenue but higher margins in the coming quarter. The company forecasts sales between $690 million and $715 million and a total gross margin of around 39%. Wall Street analysts pegged their revenue estimate for the quarter at $692.1 million.

The company also expects connected fitness subscribers to be between 3.08 million and 3.09 million.

Next phase of change

Peloton, which grew during the early days of the pandemic, has been in the midst of a broad turnaround under McCarthy, who took the helm out of business a year ago.

The company’s shares are up 62% so far this year, closing at $12.93 on Tuesday, giving it a market value of about $4.4 billion. The shares are well below their 52-week high of $40.35, which they hit when McCarthy became chief executive.

“The viability of the business was very much in question when I came in,” said McCarthy, a former Spotify Y Netflix executive. “It probably wouldn’t be an exaggeration to say that there were some people who didn’t expect us to survive that long.”

Since taking office, McCarthy has cut Peloton workforce by more than half, expanded its bike rental program across the country, began selling certified used bikes, debuted a rowing machine Y partnered with amazon Y of dick Sports articles to sell their bikes and steps.

McCarthy’s top priority was managing cash flow and bringing the company out of bankruptcy, a goal he said the company has nearly achieved. Free cash flow was negative $94.4 million, compared to negative $246.3 million in the prior quarter and negative $546.7 million in the prior year period.

McCarthy said he is ready to move from trying to keep the company alive to growing it, he told CNBC.

“Now that we’ve addressed the feasibility issues, let’s get back to thinking about the growth and future of the business, full stop,” McCarthy said.

“So there are a lot of initiatives that we’ve announced that position us to look for growth,” he added. “And the question we need to answer to investors now that we’re not talking about viability is how fast, how profitable, where does it come from, and over time we’ll start to address some of those questions.”

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