Peloton (PTON) Q4 2023 results

Platoon On Wednesday, it reported a larger-than-expected loss and a quarterly decline in new subscribers that it blamed on the recall of its Bike seat post and seasonality, sending shares plunging about 22%.

The company missed analysts’ profit estimates but beat sales expectations.

Here’s how the fitness company performed in its fiscal fourth quarter compared to what Wall Street expected, based on a survey of analysts by Refinitiv:

• Loss per share: 68 cents versus 38 cents expected
• Revenue: $642.1 million versus $639.9 million expected

The company reported a net loss of $241.8 million, or 68 cents per share, for the three months ended June 30, compared with a loss of $1.26 billion, or $3.72 per share. , one year earlier.

Sales fell to $642.1 million, down from $678.7 million a year earlier.

The company’s fiscal fourth quarter, which falls during the summer months, is traditionally slow, not only for Peloton but also for other fitness retailers. Consumers tend to forgo their workouts during the season as they travel and take part in other summer plans.

In May, CEO Barry McCarthy warned that the fourth quarter would be among the toughest from a growth perspective. For the first time, Peloton predicted a drop in subscribers.

It ended the quarter with 3.08 million subscribers, up 4% year-over-year and in line with company expectations. But compared to last quarter, the number of subscribers fell by 29,000. Peloton attributed the decline to a “seasonal” slowdown in hardware sales and higher churn than expected.

“Peloton’s performance in the fiscal fourth quarter reminds us that we operate a seasonal business,” McCarthy wrote in a letter to shareholders.

“The slowdown exceeded our expectations through May and the first three weeks of June, as consumer spending shifted toward travel and experiences,” he wrote. “Then eight weeks ago, the trend reversed and we started to see a re-acceleration in hardware sales.”

Peloton also believes that the recall of its Bike seat post, which had a tendency to come loose and break unexpectedly during use, created more churn than expected. The indicator amounted to 1.4% for the quarter. The company suspects that 15,000 to 20,000 people decided to pause their monthly subscriptions during the quarter while waiting for their seat post to be replaced.

The recall, announced in May, affected more than 2 million bikes sold by the company since January 2018 and cost $40 million during the quarter, far more than Peloton anticipated, McCarthy said. To date, the company has received 750,000 seat post replacement requests, which is also more than expected. So far, Peloton has responded to 340,000 requests and plans to finalize the rest by the end of September.

Peloton narrowly achieved positive free cash flow status on an adjusted basis, but does not expect this to last over the next two quarters due to the expected slowdown in hardware sales, timing of payments for inventory, marketing expenses and necessary cash flow for seat posts. However, it expects to achieve positive free cash flow in the second half of fiscal 2024.

In premarket trading, Peloton shares plunged about 30%, but they regained ground throughout the day. The stock has now fallen about 32% this year.

McCarthy commented on the stock price during his call with analysts, saying there is “a huge disconnect between the stock price” and the work the company is doing to drive growth.

“I don’t want to sound like one of those CEOs who is completely out of touch with stock prices, because it’s not lost on me,” McCarthy said. “But I have never been more optimistic, or more enthusiastic about the future of the company.”

McCarthy, a former Netflix And Spotify executive, has spent the past three months focusing on new strategies aimed at putting the fitness company back on a growth path.

The company is working to capture customers who don’t have thousands of dollars to spend on a stationary bike or treadmill by offering a rental program and a certified refurbishment option. The rental service, recently launched in Germany, now has more than 48,000 subscribers. The renovated line generated 6,500 sales during the quarter.

Both “prove to be important growth initiatives,” McCarthy told shareholders.

Part of that strategy is the company’s rebranding under its new chief marketing officer Leslie Berland, a former Twitter executive (now known as X). The retailer has positioned itself as a fitness company for all, investing as much in its app as it does in its expensive connected fitness products, such as Bike, Tread and Row.

In May, it unveiled a series of new pricing tiers for its fitness app, which include a free, unlimited subscription option (no credit card required) and tiers that cost $12.99 and $24 per month . The app allows consumers to watch Peloton’s fitness classes and create their own workouts from anywhere, including their gym.

Since the relaunch, the company has seen more than 900,000 app downloads, more than two-thirds of which were non-Peloton members. It’s also seeing more purchases than expected from its higher membership level. It ended the quarter with 256,000 free monthly active users.

“The anytime, anywhere, anywhere message is coming,” McCarthy said on a call with analysts.

“The final goal (of the relaunch) was to remind people that, especially with the launch of the app, this is more than just a stationary bike company and that message is finding traction as well.”

Peloton is also seeing “significant positive changes in perception across a range of metrics,” including gains among Gen Z consumers and others who may be older but still new to fitness. Peloton is also seeing a shift in the types of people downloading its app toward men, Gen Z, Black and Hispanic consumers.

As part of the rebranding, Peloton is starting to offer a variety of “limited edition bike frame colors and graphics to the consumer and commercial markets,” McCarthy said.

“For the past ten years, Peloton has been the Henry Ford of stationary bikes. We sold any color bike frame you wanted as long as you wanted black,” he told shareholders. “I’m excited to announce a change in strategy. … Expect to hear more about this exciting initiative this fall.”

Peloton also leveraged its business-to-business strategy to generate more revenue and attract new customers. Earlier this month, it announced the launch of Peloton for Business, which allows businesses to offer access to the app and its connected fitness products through its benefits offerings.

Customers include Volvo, which has Peloton bikes in its corporate fitness center and offers employees access to the Peloton app, its all-access membership, and discounts on equipment including Bike, Bike+ , Tread and Guide. Dropbox offers a similar plan to its employees.

Peloton also launched a new program aimed at partnering with NCAA Division 1 schools. The new strategy kicked off Tuesday with the announcement that it is partnering with the University of Michigan to create co-branded Peloton bikes that will be used at the school’s various fitness facilities — and on the sidelines of the football stadium of the school, known as the Big House.

“Expect to hear more announcements regarding other global partners in the coming weeks,” McCarthy said.

It also launched a new discounted offer for students in its “One” tier, which usually costs $12.99 per month, but will be reduced to $6.99 per month.

Read the full earnings release here.