ii view: Peloton shares freewheel lower

Shares for this interactive fitness company are down by more than two-thirds year-to-date. We assess prospects. 

Fourth-quarter results to 30 June  

• Revenue down 28% year-over-year to $679 million 
• Net loss of $1.24 billion, up from a loss of $313.2 million

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ii round-up:

Connected treadmill and cycle machine supplier Peloton Interactive Inc (NASDAQ:PTON) today detailed both an increased loss and sales that missed Wall Street forecasts as it continued to battle inventories left over from previous high-pandemic demand and costs in relation to a turnaround plan.

Fourth-quarter sales of $679 million fell 28% compared with the quarter a year ago, missing analyst estimates nearer to $720 million and helping to push losses up to $1.24 billion from 2021’s fourth-quarter losses of $313.2 million.  

Peloton shares fell by close to a fifth in US trading following the results, having gained by a similar amount the day before as the company announced a sales relationship with online store mammoth Amazon (NASDAQ:AMZN). That leaves Peloton shares down by close to 70% year-to-date and compares to a fall of around 19% for the Nasdaq Composite index. 

Peloton generates revenues via both product sales and subscriptions to its online sessions from both Peloton machine owners and non-product owners.

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Connected Fitness Product sales dropped 55% year-over-year to $295.6 million. Subscription revenues climbed 36% to $383.1 million and marked the first quarter in which they exceeded product sales. 

Higher delivery logistics expenses and costs relating to the recall of its Tread+ treadmill machine both weighed on profitability. As did $415 million of restructuring charges taken under the relatively new chief executive’s turnaround plan. CEO Barry McCarthy previously worked for both Netflix (NASDAQ:NFLX) and Spotify Technology (NYSE:SPOT). 

Customer memberships fell 2% from the previous third quarter to 6.9 million, although they were up 15% compared with the quarter a year ago. 

Peloton offered no financial guidance for the 2023 year ahead but flagged revenue growth and profit margin expansion as core focuses.      

Past performance is not a guide to future performance.

ii view:

Founded in 2012 and headquartered in New York, Peloton generates most of its sales at just over 80% in the US. That’s followed by Canada at around 10%, with the rest of the world making up the balance. 

For investors, a major turnaround programme under the relatively new chief executive is being pursued. Moves to both stabilise cashflows and inject growth again offer hope. Significant cost savings are being pursued, while broadening its distribution to sellers such as Amazon is now in focus, along with growing overseas sales. 

However, below-forecast sales and losses leave investor confidence fragile. Previous product safety issues and recalls sit alongside supply chain challenges, while growing competition has also likely added to its required product price cuts. For now, and with the pandemic muddying the waters and few signs yet of a recovery in key financial metrics, investors may continue to simply watch events. 

Positives: 

• Renegotiated supply contracts
• Potential to grow overseas

Negatives:

• Growing competition
• Not paying a dividend

The average rating of stock market analysts:

Strong hold