US Markets
Thursday, November 2nd, 2023 1:57 pm EDT
Key Points
- Financial Performance: Peloton’s first fiscal quarter revealed a net loss of $159.3 million, or 44 cents per share, surpassing analysts’ expectations. Although the revenue was $595.5 million (slightly above the expected $591 million), this marked a decline from the previous year.
- Tepid Holiday Forecast: For the upcoming holiday quarter, Peloton forecasted revenue between $715 million and $750 million, an 8% decline compared to the previous year, falling short of analysts’ expectations. The company also projected lower numbers for paid connected fitness subscriptions, expecting between 2.97 million and 2.98 million compared to analyst estimates.
- Strategies and Challenges: Despite several strategic initiatives such as the launch of a tiered pricing strategy and partnerships with Lululemon, the NBA, and WNBA, Peloton is encountering challenges in retaining paid subscriptions and engaging free app users. Churn rates were higher than expected, leading to lower-than-anticipated paid app subscribers. Additionally, the company’s efforts to recover from a seat post recall have cost more than anticipated.
Peloton reported a wider-than-expected quarterly loss, leading to a 6% drop in its premarket trading shares. The company’s performance in its first fiscal quarter did not meet Wall Street’s expectations, with a loss per share of 44 cents, while analysts anticipated a loss of 34 cents. Additionally, Peloton’s revenue was $595.5 million, slightly surpassing the expected $591 million. The reported net loss for the three-month period ending on September 30 was $159.3 million, or 44 cents per share, compared to a loss of $408.5 million, or $1.20 per share, in the same period the previous year. Sales also decreased to $595.5 million from $616.5 million in the previous year.
The revenue from Peloton’s subscriptions, amounting to $415 million, continued to outpace sales of its hardware, which amounted to $180.6 million. Looking ahead, for the holiday quarter, Peloton expects revenue to be between $715 million and $750 million, representing an 8% decrease compared to the previous year. However, this forecast fell short of the $763.2 million expected by analysts.
Furthermore, Peloton anticipates paid connected fitness subscriptions to range between 2.97 million and 2.98 million, which is lower than the 3.03 million expected by analysts. The company also forecasts paid app subscriptions to be between 660,000 and 680,000, with a 21% year-over-year decline and a 12% sequential churn. This number is also below the expected 780,400 subscribers according to StreetAccount. For the full year, Peloton expects paid app subscriptions to decrease by 6%, ranging from 700,000 to 850,000, and revenue to fall by 2% to $2.7 billion to $2.8 billion. Analysts had anticipated full-year revenue to align with Peloton’s projections at $2.79 billion.
In its efforts to regain its pandemic-era success, Peloton has implemented various strategies. One successful aspect has been its rental service, known as “fitness as a service,” with 54,000 rental subscribers in the U.S. and Canada, and expectations to reach 75,000 by year-end. However, Peloton is still experiencing higher-than-expected membership churn. The company ended the quarter with 2.96 million connected fitness subscriptions, falling short of the 2.99 million expected by analysts.
Peloton introduced a tiered pricing strategy for its app earlier this year, which included a free tier, aiming to convert free users into paying members. Despite more than one million users downloading the free version of the app, the company struggled to engage and retain free users and convert them into paying members. As a response, Peloton redirected its marketing spend toward the paid offering and worked on improving the user experience, ending the quarter with 763,000 paying Peloton app subscribers, a decrease of 65,000 compared to the previous quarter.
The company has also entered into strategic partnerships, such as a five-year partnership with Lululemon to share fitness content with Lululemon’s 13 million members. A multi-year partnership with the NBA and WNBA was announced, making Peloton the official fitness partner of the sports leagues. Peloton expanded its hardware sales to new markets, selling its Row machine in Canada and its Bike and Bike+ in Austria, aiming to boost sales of its connected fitness products.
Peloton’s goal is to return to growth and increase membership, eventually finding a path to profitability. The company faced challenges in the previous quarter, including issues related to a recall of its Bike seat post, which cost the company $40 million, significantly more than expected. The post had a tendency to detach and break during use, leading to injuries and impacting over 2 million bikes.
For the full original article on CNBC, please click here: https://www.cnbc.com/2023/11/02/peloton-pton-earnings-q1-2024.html
