Peloton Shares Plummet as Company Posts Wider Than Expected Loss in Q1

Exercise machine maker Peloton saw its shares tumble 25% on Thursday after the company reported a wider-than-expected loss in the second quarter and cut its full-year outlook.

For the first quarter the company reported a loss per share of $1.25 compared to $1.07 that was expected per Refinitiv. Revenue at $805.2 million was also lower than the $810.7 million that had been expected.

For the three-month period ended Sept. 30, Peloton reported a net loss of $376 million, or $1.25 per share, compared with net income of $69.3 million, or earnings of 20 cents a share, a year earlier.

Revenue grew 6% despite missing estimates.

The company slashed its outlook for the full fiscal year amid softened demand for its exercise equipment and ongoing supply chain challenges. For example, as the pandemic eases, more consumers are choosing to go back to gyms.

“We anticipated fiscal 2022 would be a very challenging year to forecast, given unusual year-ago comparisons, demand uncertainty amidst re-opening economies, and widely-reported supply chain constraints and commodity cost pressures,” Chief Executive Officer John Foley said in a letter to shareholders.

According to Foley, a slower-than-expected start to the second quarter and “challenged visibility” in the near term led the company to lower its expectations.

Sales of connected fitness products, including its Bikes and Treads, fell 17% to $501 million. Subscription revenue however grew 94% to $304.1 million. Connected fitness sales accounted for 62% of Peloton’s business in the quarter.

Average net monthly connected fitness churn, which Peloton uses to measure retention of connected fitness subscribers, ticked up to 0.82% from 0.73% in the prior quarter.
Connected fitness subscribers completed 16.6 workouts per month, on average, a drop from 20.7 workouts a year earlier.

Peloton had cut the price of its original Bike by 20% to $1,495 in August but Chief Financial Officer Jill Woodworth said that while Bike sales accelerated after the change, the results haven’t entirely met Peloton’s expectations.

“While the price drop led to conversion rates that exceeded our forecast, overall traffic has not met our initial expectation,” Woodworth told analysts. “We’ve also seen a richer than anticipated mix of Bike sales versus Bike+, further impacting both revenue and our growth margin expectation.”

“At the end of the day, we are seeing how large the Peloton business is rather than how far its voice has spread,” BMO Capital Markets analyst Simeon Siegel said. “What Peloton has accomplished is remarkable, but that doesn’t mean its trajectory is limitless.”

“Connected fitness is becoming a sector rather than a one company story,” Siegel added.

For the fiscal year Peloton cut its expectations for subscribers and sales. It now anticipates connected fitness subscribers to amount to between 3.35 million to 3.45 million, down from a prior outlook of 3.63 million. It sees revenue ranging between $4.4 billion to $4.8 billion, down from $5.4 billion. Analysts’ consensus was for $5.39 billion.

“The primary drivers of our reduced forecast are a more pronounced tapering of demand related to the ongoing opening of the economy, and a richer than anticipated mix of sales to our original Bike,” the company said.

Disclaimer: We have no position in any of the companies mentioned and have not been compensated for this article.