Although Peloton (PTON) has yet to see a profit for the 8th straight quarter, net losses have narrowed from a year prior and it appears as though Peloton CEO Barry McCarthy is finally on its way to righting the company ship, calling the results a “potential turnaround.”  

In a letter released to shareholders ahead of the scheduled second quarter earnings call on Wednesday, February 1, 2023, the Peloton CEO noted that, in the last quarter, the company “has significantly outperformed our expectations for Connected Fitness subscriptions, Connected Fitness Unit (CFU) orders, CFU deliveries, hardware revenue, subscription revenue, and Total Revenue, Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA), and Free Cash Flow.”  He also mentioned that this has, by far, been the best quarterly performance since taking the help at Peloton 12 months ago.

Over the last several months, Peloton has leaned into increasing its subscriber numbers, and the move appears to be working, as, despite lackluster hardware sales, subscription revenue continues to tend upward.  Gross margins for subscription sales were up 67.6%, while hardware sales were down -11.2%.  With the holiday season sales push out of the way, Peloton expects to see a decline in revenue in the next quarter, however is predicting an increase in both margins and subscriptions. 

Despite posting wider losses per share than expected, news of the second quarter revenue exceeded Wall Street expectations, and Peloton shares were up by 7% in pre-market trading on Wednesday morning. 

 

 

Second Quarter Earnings Call (Q2 FY23) By the Numbers:  

(source: CNBC)

• Losses per share: $.98 vs $.64, as predicted by Wall Street
• Revenue: $792.7 million vs $710 million, as predicted by Wall Street
• Revenue dropped 30% compared to a year ago, but exceeded the expected range of $700-$725 million
• Peloton ended the quarter with 6.7 million total members
• 3.03 million connected fitness subscriptions, a 10% jump from a year ago
• 852,000 app subscribers, down 1% from a year ago
• GOAL: 1 million people to sign up for app trials over the next year
• Expecting 3.08 to 3.09 million connected fitness subscribers in the months to come
• Sales are expected to be between $690 million and $715 million in the next quarter
• The company’s stock is up about 62% this year
• Free cash flow was -$94.4 million, compared with -$246.3 million in the last quarter and -$546.7 million a year ago

In the shareholder letter, McCarthy made it a point to mention that he was aware that there was still ground to cover and improvements to be made with the Peloton Member experience, notably delivery issues and Member Support, with the promise that “I commit to you we are working hard to fix both.”  

 

 

A Peek Behind the Curtain:

During an investors’ conference call shortly after the earnings report was released, McCarthy and other Peloton executives fielded questions related to the report.  Highlights include: 

• Fitness As A Service (FAAS) has doubled
• McCarthy does not consider Peloton to be back to pre-pandemic “normal” based on various factors including customer trends and model changes 
• First priority remains free cash flow, then the company will pivot to growth
• 3rd party retail is outperforming expectation 
• App growth remains a priority, with a focus on allowing Members to use non-Peloton equipment, including rowing. 
• McCarthy reiterated, again, that restructuring is complete
• Row demand is exceeding expectations and is on par with Tread

Signaling the promising second quarter news, both CNBC and Bloomberg have released early morning articles, with Bloomberg declaring that Peloton is no longer at the brink of extinction and CNBC noting that Peloton’s losses have narrowed.  All of Peloton’s quarterly results can be read here.  

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