Peloton Crashes To Record Low As Sales Tumble, Forecast Slashed
Peloton Interactive shares crashed to a record low in premarket trading on weak revenues for the fiscal fourth quarter and dismal outlooks for its bikes and treadmills while revealing the seat recall for bikes earlier this year severely impacted its business. CEO Barry McCarthy's much-hyped turnaround strategy is crumbling faster than you can say 'spin class.'
Peloton's earnings fell short of analysts tracked by Bloomberg:
Revenue $642.1 million, -5.4% y/y, estimate $641.6 million
Connected fitness revenue $220.4 million, -25% y/y, estimate $210.2 million
Subscription revenue $421.7 million, +10% y/y, estimate $430.8 million
Connected fitness subscribers 3.08 million, +3.8% y/y, estimate 3.09 million
Adjusted Ebitda loss $34.7 million, -88% y/y, estimate loss $19.5 million
Loss per share 68c
Peloton said, "The slowdown exceeded our expectations through May and through the first three weeks of June as consumer spending shifted toward travel and experiences. Then eight weeks ago the trend reversed itself, and we began to see a reacceleration in hardware sales."
It noted the recall of seats for Bikes announced in May "substantially exceeded our initial expectations, leading to an additional accrual of $40 million this quarter for actual costs incurred as well as anticipated future recall-related expenses. In addition, an estimated 15 to 20 thousand of our 2.2 million impacted Members elected to pause their monthly subscriptions in Q4 pending the receipt of a replacement seat post."
Peloton barely achieved free cash flow:
For the second time in the turnaround of Peloton, we achieved positive free cash flow* in the most recent quarter, excluding the DISH legal settlement, and despite the impact of the seat post recall on Q4 sales revenue. Pro-forma free cash flow was $1 million, so barely positive and only positive on a pro-forma basis, which was not the goal we set for the business. Nevertheless, we achieved an important milestone in rightsizing the cost structure of the business.
... but that won't last. The company warned:
We don't currently expect to remain free cash flow positive in the two upcoming quarters, mainly due to seasonality of our hardware sales, timing of inventory payments, marketing spend as we invest for growth and prepare for the holiday season, and one-time cash outlay for seat posts; but we do expect to achieve this objective once again in the second half of FY24.
First-quarter forecasts were also dismal, missing average analysts' estimates:
Sees revenue $580 million to $600 million, estimate $647.8 million (Bloomberg Consensus)
Sees adjusted Ebitda loss $10 million to $20 million, estimate profit $5.68 million
Sees connected fitness subscribers 2.95 million to 2.96 million, estimate 3.08 million
Sees gross margin 46.5% to 46.5%
The news sent shares to a record low, down 28% to $5-handle.
Why work out when you can take Eli Lilly's fat drug "Ozempic."
We've seen this game before: Queue the headline that says 'Peloton buyout' to squeeze shorts.
