Peloton Interactive Inc. reported mixed financial results for its fiscal second quarter ended December 31, 2023, as the connected fitness company continues to face challenges with slowing demand and widening losses.
Key Takeaways
- Revenue totaled $792.7 million, down 30% year-over-year but topping analysts’ estimates of $712 million
- Net loss widened significantly to $335.3 million from $439.4 million a year ago
- Total memberships fell 4% to 6.4 million from 6.7 million last year
- Peloton lowered its full-year revenue outlook again and now sees sales falling 15-17% versus prior view of down 12-14%
“The past year has been challenging, but a necessary reset to align our business to the current scale of the market,” said CEO Barry McCarthy. “I believe we can continue to grow the Peloton business over the long run.”
Financial Results
Peloton posted revenue of $792.7 million in its fiscal second quarter. While this represented a 30% decrease versus $1.13 billion in the same period last year, it did manage to exceed Wall Street’s lowered expectations of $712 million.
The connected fitness equipment maker saw further erosion of its user base, with total memberships declining 4% year-over-year to approximately 6.4 million. This metric has been steadily falling after peaking above 7 million last year.
On the bottom line, steep losses continued as Peloton remained mired in restructuring efforts and inventory write-downs. The company posted a net loss of $335.3 million, significantly wider than the $439.4 million loss seen a year ago and reflecting persistent demand issues weighing on profitability.
| Financial Metric | Q2 2023 | Q2 2022 | Year-Over-Year Change |
|---|---|---|---|
| Revenue | $792.7 million | $1.13 billion | -30% |
| Net Loss | $335.3 million | $439.4 million | Loss widened |
| Memberships | 6.4 million | 6.7 million | -4% |
Updated Outlook
Alongside the latest results, Peloton provided an updated outlook which calls for a greater revenue decline over the full 2023 fiscal year. Management now sees sales falling 15-17% versus the previous guidance range of a 12-14% decrease.
The connected fitness firm also predicts steeper losses for the year, forecasting an adjusted EBITDA loss between $325 million and $375 million compared to the prior view of $275 million to $325 million.
Peloton noted particular softness in sales of its original Bike product, indicating the company still faces an uphill battle to reinvigorate demand. Management did highlight some positive trends around its strength training products and progress reducing operating expenses and cash burn.
Recent Struggles and Turnaround Efforts
The latest results continue Peloton’s protracted struggles over the past year amid a demand downturn following huge growth early in the pandemic. In addition to four consecutive quarters of falling revenue and eroding memberships, the company has dealt with high costs, inventory glut, supply chain challenges, and other issues that prompted major leadership changes.
Former Spotify and Netflix executive Barry McCarthy took over as CEO last February with a mandate to execute a turnaround strategy focused on right-sizing operations, lowering expenses, moving manufacturing out of Taiwan, expanding Adidas partnership for apparel, and revitalizing demand through new products.
While McCarthy has made some progress on cutting costs and reducing cash burn, the path back to consistent sales growth and profitability remains uncertain given ongoing consumer spending headwinds. The company still holds ample long-term potential with its differentiated interactive fitness content and loyal user base. But Peloton clearly faces a pivotal period over the coming year to demonstrate its brand still resonates.
Analyst Commentary and Valuation
Most Wall Street analysts maintain cautious views on Peloton amid persistently sluggish demand trends, with the average 12-month price target at $11 implying minimal upside from current levels.
KeyBanc analyst Edward Yruma downwardly revised his rating to Sector Weight from Overweight following the results while noting “the road to recovery is longer and more uncertain than we had anticipated.”
At the same time, some analysts see the significantly lowered expectations and 75% share price drop over the past year as having priced in the bulk of the downside risks.
Truist analyst Youssef Squali wrote that Peloton now trades at just 0.2x price/sales which “discounts a scenario where the company continues to cede share and new subs remain negative.” With improved cost structure and potential for stabilization, Squali believes “the risk/reward at current levels is attractive.”
Peloton shares have plunged over 90% from all-time highs but have recovered off bottoms below $7 in recent months. The stock dropped over 15% initially on the latest results and guidance cut before paring losses. Volatility is likely to remain elevated in the near term as investors continue assessing the company’s precarious path back to stability and renewed expansion amid a challenging macroeconomic environment.
In summary, Peloton’s latest quarter reflected ongoing struggles with faltering demand, loss of subscribers, and widening losses. While showing some signs of progress on cost cuts and cash burn reduction, the connected fitness firm still faces a difficult road back to consistent growth and profitability. The significantly lowered valuation likely reflects a highly uncertain outlook, but one which may still hold long-term potential if Peloton can execute on its vision.
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