Peloton's Turnaround Plan Falters As Anti-Obesity Drug Craze Soars 

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by Tyler Durden
Thursday, Nov 02, 2023 - 12:35 PM

Let's begin with this. 

Shares of Peloton Interactive Inc. tumbled in pre-market trading following a drop in revenue and ongoing difficulties in maintaining its subscriber base during the last quarter. It appears Chief Executive Barry McCarthy's turnaround plan is faltering as America's anti-obesity craze, courtesy of GLP-1-based weight loss drugs such as Wegovy and Mounjaro made by Novo Nordisk and Eli Lilly, is an easier weight loss solution than hoping on an overpriced bike with a giant iPad while being yelled at by an instructor for a 20 minute HIIT workout.

Peloton provided a sales forecast for the second quarter, ending in December, to be between $715 million and $750 million. The midpoint of that range is about an 8% decline from the $769.8 million analysts had predicted

Second Quarter Forecast

  • Sees revenue $715 million to $750 million, estimate $769.8 million (Bloomberg Consensus)
  • Sees adjusted Ebitda loss $70 million to $90 million, estimate loss $46.8 million
  • Sees connected fitness subscribers 2.97 million to 2.98 million, estimate 3.03 million
  • Sees gross margin 40%

For the first quarter, Peloton posted a 3.4% drop in revenue, mainly driven by lower sales of its fitness products. The fitness equipment company said its bike rental business, which accounted for 33% of bike orders last quarter, saw promising growth. 

Peloton ended the quarter with 2.96 million paid connected fitness subscribers, missing the 2.98 million estimate. 

First Quarter Results

  • Revenue $595.5 million, -3.4% y/y, estimate $590.7 million
  • Connected fitness revenue $180.6 million, -12% y/y, estimate $170.8 million 
  • Subscription revenue $415.0 million, +0.7% y/y, estimate $419.5 million
  • Connected fitness subscribers 2.96 million, estimate 2.98 million
  • Paid digital subscribers 763,000, estimate 759,627
  • Adjusted Ebitda $9.1 million vs. loss $33.4 million y/y, estimate loss $15.2 million
  • Negative cash flow from operations $79.2 million, -61% y/y, estimate negative $54 million 

Shares of Peloton fell 7% in premarket trading - near a record low. 

Goldman's GLP-1 Obesity drug basket vs. Peloton 

Chief Executive said, "The bad news is we were less successful at engaging and retaining free users and converting them to paying memberships than we expected." 

Not explained, but certainly, we can assume that GLP-1-based weight loss drugs have disrupted Peloton's turnaround plan. 

In the third quarter, Novo Nordisk reported a surge in demand for its blockbuster obesity drug Wegovy. 

While Peloton sales fell in the prior quarter, Wegovy sales soared to nearly 10 billion kroner ($896,385,000). About 95% of the sales of Wegovy are in the US as the company struggles to keep up with demand.

Novo CEO Lars Fruergaard Jorgensen said as many as 50 million Americans could need access to the obesity drug right now. 

This shift in consumer preference for quick weight loss may have presented new challenges to Peloton's turnaround story.