Peloton (PTON) Q2 Profit 2023
Brody Longo trains on his Peloton bike on April 16, 2021 in Brick, New Jersey.
Michael Loccisano | Getty Images
peloton said on Wednesday net loss reduced year on year, and for the third consecutive quarter, subscription revenue exceeded sales of the company’s connected fitness products.
CEO Barry McCarthy called the results a possible “turning point” for the business, which has pursued an aggressive recovery strategy for much of the past year.
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The fitness equipment company’s fiscal second-quarter revenue beat Wall Street’s expectations, but the company posted a larger-than-expected loss per share. Shares of Peloton jumped about 7% in premarket trading.
Here are Peloton’s results for the three months ended Dec. 31, compared to what Wall Street had expected, according to an analyst survey conducted by Refinitiv:
- Loss per share: 98 cents vs. 64 cents expected.
- Revenue: $792.7 million vs. $710 million expected
The company’s net loss for the three-month period ended Dec. 31 was $335.4 million, or 98 cents per share, compared with a loss of $439.4 million, or $1.39 per share, a year earlier. The company is reporting losses for the eighth consecutive quarter, but this is the lowest loss Peloton has recorded since the fourth fiscal quarter of 2021.
Revenue fell 30% year-over-year but exceeded the company’s expected range of $700 million to $725 million. Sales of connected fitness products, which are typically high during the Peloton holiday quarter, fell 52% year-over-year, while subscription revenue jumped 22%.
“This is the time of year when, if we’re going to be selling a lot of equipment, you expect there will be a lot of equipment-related revenue, and you expect that revenue to probably exceed the subscription,” McCarthy. told CNBC. “It’s not like that. That’s why in the letter [to investors]I call it because it could be a turning point.”
In his letter to investors, McCarthy said he expected the trend to continue.
The company ended the quarter with 6.7 million users and 3.03 million connected fitness subscriptions, up 10% from last year. The company counted 852,000 subscribers to its app, down 1% from a year earlier. He has a goal of getting 1 million people to sign up for trials of his app over the next year.
Peloton is losing money on bikes, tracks and other vehicles, but its subscription business is once again keeping overall profits above water. Gross margin on connected fitness products was minus 11.2%, but gross margin on subscription sales was 67.6%. Total gross margin was 29.7% compared to 24.8% a year earlier. However, it declined quarter-on-quarter, due in part to increased promotions during the holiday quarter.
Peloton expects revenue to decline next quarter but earnings to rise. The company forecasts sales of $690 million to $715 million and a total gross margin of around 39%. Wall Street analysts put their revenue estimate for the quarter at $692.1 million.
The company also expects the number of connected fitness subscribers to be between 3.08 million and 3.09 million.
The next stage of the coup
Peloton, which flourished in the early days of the pandemic, was in the midst of a broad turnaround strategy under McCarthy, who took over the business a year ago.
The company’s shares are up about 62% this year, closing at $12.93 on Tuesday, giving a market value of about $4.4 billion. The stock is well above the 52-week high of $40.35 it reached around the time McCarthy became CEO.
“The viability of the business was in serious doubt when I entered,” said McCarthy, a former Spotify and Netflix executive. “It’s probably not an exaggeration to say that there were people who didn’t expect us to live that long.”
Since taking office, McCarthy has cut Peloton’s workforce by more than half, expanded its bike-share program nationwide, started selling certified used bikes, debuted a rowing machine, and partnered with Amazon and Dick Sports goods to sell their bikes and tracks.
McCarthy’s top priority was cash flow management and getting the company out of the red, a goal he said the company was close to achieving. Free cash flow was minus $94.4 million compared to minus $246.3 million in the previous quarter and minus $546.7 million a year earlier.
McCarthy said he was ready to move from trying to keep the company to growing it, he told CNBC.
“Now that we’ve covered viability issues, let’s get back to thinking about growth and the future of the business, like the dot,” McCarthy said.
“So there are a number of initiatives that we have announced that allow us to achieve growth,” he added. “And the question we have to answer investors now, when 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.”