Fresh off an announcement that it would begin selling its bikes on Amazon.com Inc., Peloton Interactive Inc. posted a sharp loss for its most recent quarter and delivered a significantly lower forecast for the current period than analysts had been expecting.
The maker of connected fitness equipment logged a net loss of $1.24 billion, or $3.68 a share, in its fourth fiscal quarter, whereas it lost $313 million, or $1.05 a share, in the year-earlier period. Analysts tracked by FactSet were anticipating a 76-cent-per-share loss on a GAAP basis.
Chief Executive Barry McCarthy noted in the company’s shareholder letter that $415 million of the company’s $1.2 billion fourth-quarter operating loss came from restructuring charges. “The loss reflects the substantial progress we made this last quarter re-architecting the business to reduce the current and future inventory overhang, converting fixed to variable costs, and addressing numerous supply chain issue,” he said.
revenue declined to $679 million from $937 million a year before and came in below the FactSet consensus, which called for revenue of $682 million. The company generated $296 million in revenue from products and $383 million from subscriptions.
Shares were down 20% early Thursday.
“When you look at our financial performance in Q4, I suspect what you see will be a function of where you sit,” McCarthy said in the letter to shareholders. “The naysayers will look at our Q4 financial performance and see a melting pot of declining revenue, negative gross margin, and deeper operating losses.”
McCarthy, however, sees “significant progress driving our comeback and Peloton’s long-term resilience,” he said, through milestones like “new executive leadership, renegotiated supply contracts, and significantly reduced cash outflow.”
The company ended its fourth quarter with 2.97 million connected fitness subscriptions, whereas analysts were modeling 2.98 million. The company had 2.96 million connected fitness subscribers in the third quarter of its fiscal year.
“We anticipated a sequential increase in churn this quarter due to seasonal trends as well as the announcement of our All-Access Membership subscription price increase,” the company said in its letter to shareholders. “Exiting the quarter, churn has been tracking lower than Q4 levels.”
MKM Partners analyst Rohit Kulkarni was less upbeat about the state of the business as he reiterated a neutral rating on Peloton’s stock.
“Apart from encouraging CEO commentary and modest anticipated improvement in margins, there are very few things to cheer about in today’s press release,” he wrote. “Given its level of cash, inventory, and cash burn, we view existential threats on Peloton as rising, particularly amidst an environment with reopening headwinds, rising interest rates, rising commodity prices (inflation), and possibly, softer consumer discretionary spend patterns” heading into the second half of the year.
For its first quarter, Peloton expects $625 million to $650 million in revenue, with 2.97 million connected fitness subscribers. Analysts tracked by FactSet were expecting $757 million in revenue as well as 3.03 million connected fitness subscribers.
The earnings come amid a tumultuous period for Peloton, a former pandemic darling that now must contend with evolving consumer preferences. The company has been trying to cut costs and reduce inventory amid slowing demand.
Earlier this week it announced a plan to start selling certain products on Amazon
a move that helped send shares more than 20% higher in Wednesday’s session. McCarthy offered further information in the company’s shareholder letter.
“Our orders will be fulfilled by Amazon’s logistics network and for the first time we’re offering new Members a self-assembly option in addition to our traditional expert assembly service,” he wrote. “We remain engaged in productive conversations with other prospective retail partners and are hopeful we’ll be able to announce additional partnerships soon.”
Peloton previously was limited to direct-to-consumer sales, and JMP Securities company Andrew Boone thought that the new arrangement, and potential additional retail partnerships down the line, could help Peloton operate under more of a variable-cost model as the company could reduce its reliance on fixed-cost showrooms.
“[W]e believe Peloton is increasingly becoming a cost savings story,” Boone wrote Wednesday after the Amazon announcement.