April 14, 2024

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Peloton Corporation (PTON) reports increased losses in the fourth quarter of 2022

Peloton Corporation (PTON) reports increased losses in the fourth quarter of 2022

A person walks past a Peloton store on January 20, 2022 in Coral Gables, Florida.

Joe Riddell | Getty Images

peloton On Thursday, it reported increasing losses and declining sales in the fourth quarter of the fiscal year as the connected fitness equipment maker tries to win back investors through cost cutting and strategic shifts.

Shares fell more than 15% in pre-market trading, a day after the stock rose more than 20% after news of its partnership with Amazon.

It marks the sixth consecutive quarter of reported losses for Peloton. The company said it aims to reach cash flow break-even on a quarterly basis in the second half of fiscal year 2023.

However, Barry McCarthy, Peloton CEO, said he expects the connected fitness market to remain challenging for the foreseeable future, as consumer demand for at-home exercise devices wanes from the heights of the pandemic.

Since McCarthy He took over as CEO from Peloton founder John Foley in February, the company followed drastic changes that did not fully bear fruit. Peloton has raised membership fees, Some equipment prices have gone uplayoffs of thousands of workers lease option testing I got out of the last mile delivery And the Transfer all production to third parties. On Wednesday, Peloton too Selling started On a part of its products Amazon In the US, it is the first such transaction with another retailer.

The naysayers will look at us [fourth quarter] “Financial performance is witnessing a melting pot of declining revenue, negative gross margin and deeper operating losses,” McCarthy wrote in a letter to Peloton shareholders.

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“But what I see is significant progress driving our comeback and the long-term resilience of Peloton,” he said. “We still have work to do.”

Peloton did not provide forecasts for the next fiscal year 2023. For the first quarter, it said it sees the number of subscribers steady, and revenue between $625 million and $650 million. Peloton said this takes into account weaker near-term demand and seasonal business fluctuations.

There was a positive side for the company: This was the first reported quarter for Peloton in which higher-margin subscription revenue made up the majority of total sales.

Losses are escalating

Peloton’s net loss widened for the three months ended June 30 to $1.24 billion, or $3.68 per share, from a loss of $313.2 million, or $1.05 per share, a year earlier.

McCarthy said the losses were caused by Peloton’s efforts to avoid an inventory glut, cut fixed costs and address other supply chain issues. The company earlier this year embarked on a project $800 million restructuring plan. Peloton finished the fourth quarter with inventory of $1.1 billion.

Revenue fell 28% to $678.7 million from $936.9 million a year earlier. That came in less than the $718.2 million analysts were looking for, according to Refinitiv estimates.

Within this figure, connected fitness revenue that includes the contribution from The works of Peloton Precor It fell 55% to $295.6 million.

The overall fitness margin related to Peloton was another bleak spot, registering a negative 98.1% compared to a positive 11.7% a year earlier. Peloton said it faced higher logistical expenses per delivery, increased port and warehousing costs, as well as fees related to Summon her Tread + treadmill machine.

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Peloton reported $383.1 million in subscription revenue, up 36% from the previous year and representing 56.4% of the company’s total sales.

McCarthy, who previously worked at Netflix And the spotifyHe explained that he is more interested in pursuing growth on the subscription side of the Peloton business, rather than focusing on hardware. He believes that the Peloton digital app will be the foundation of the company’s future success.

The number of members is going down

Peloton finished last quarter with 2.97 million connected fitness subscriptions, roughly flat with prior quarter levels and up 27% from a year ago. Connected Fitness subscribers are people who own a Peloton product, like the original bike, and also pay a monthly fee to access live and on-demand workout classes.

However, its total membership fell by about 143,000 people from the previous quarter to 6.9 million. McCarthy said, following Foley’s initial vision, the company hopes to one day gather 100 million members.

The average Peloton net monthly fluctuation levels for connected fitness users increased to 1.41% from 0.73% a year ago.

The company said this was exceeding its internal expectations due in part to a consumer protection ruling in Canada that forced all customers in the country to agree. Subscription price hikes that took effect in JuneAnd about 85% of them have done so so far. Peloton said it expected some people to drop their membership after the price hike.

But investors may be wary of the jump. The lower drop rate may be better news for Peloton, as it means that people stay permanent and keep paying for their membership.

McCarthy said in his letter to shareholders that the fourth quarter should prove to be a “high watermark” for write-offs and restructurings related to inventory and supply chain challenges. It should also mark the beginning of the Peloton comeback story, he said.

Peloton shares are down about 60% year-to-date, as of the market close on Wednesday.

This story is developing. . Please check back for updates