Peloton (PTON) Q1 2024 quarterly earnings

Peloton Thursday reported a wider-than-expected quarterly loss, a quick holiday forecast and “bad news” for paid subscriptions.

The connected fitness company has been working hard to boost revenue with several high-profile partnerships and the much-anticipated Tread+ relaunch, but the success of its efforts remains uncertain. certain because they continue to lose members and fail to make money off of it. Yes.

Here’s how Peloton did in its first fiscal quarter compared to Wall Street expectations, based on a survey of analysts by LSEG, formerly Refinitiv:

• Call each category: 44 cents vs. 34 cents expected
• Income: $595.5 million vs $591 million expected

The company’s reported net loss for the three months ended Sept. 30 was $159.3 million, or 44 cents per share, compared with a loss of $408.5 million, or $1.20 per share, a year earlier.

Sales fell to $595.5 million, down from $616.5 million a year earlier.

Again, Peloton’s subscription revenue – at $415 million – far exceeded hardware sales – $180.6 million – which has been a constant trend for the company.

For its holiday quarter, Peloton cited concerns that inflation-weary consumers will pull back on spending during the season, which is typically the strongest period for product sales. hard

Revenue is expected to be between $715 million and $750 million, an 8% drop at the midpoint compared to a year ago. That’s lower than the $763.2 million that analysts had expected for the company’s fiscal second quarter, according to LSEG.

It expects paid affiliate fitness subscriptions to be between 2.97 million and 2.98 million, which is lower than the 3.03 million expected by analysts, according to StreetAccount. Paid app subscriptions are expected to drop 21% year-over-year and churn 12%.

For the full year, Peloton expects paid app subscriptions to fall 6% and revenue down 2% to a range of $2.7 billion to $2.8 billion. Analysts expected full-year revenue to match Peloton’s projections at $2.79 billion, according to LSEG.

Peloton has been working to launch a series of new strategies in its bid to recover during the Covid pandemic but so far, the results have been mixed.

One bright spot is its rental service, also known as fitness as a service, which CEO Barry McCarthy called a “huge growth opportunity” in a letter to shareholders. Peloton ended the quarter with 54,000 rental subscribers in the US and Canada and expects to end the year with 75,000 subscribers. In the quarter, rentals represented more than 33% of bicycle sales.

During a call with analysts, McCarthy said that he has actually been holding the program back from growing more because it still takes about 18 to 20 months for the company start making money on rent. Over the next year, Peloton hopes to better understand the economics of the program and the working capital it will need to grow it, he said.

“Before we release it into the wild, we’ll know better what we’re doing, if that makes sense,” McCarthy said.

“If I were to step out of the way, so to speak, it would already be a bigger business than I let it be. “

The company also has plans to relaunch its Tread+, which was recalled in 2021 after a child was killed and dozens of injuries were reported. Considering the new price of $5,995, McCarthy said sales could “fall flat” with the current economic environment but he believes it could be a sales enabler.

“Of all the products I’ve ever had with Peloton, the Tread+ is the only product you couldn’t get out of the dead hands of the members,” said McCarthy. “They really go above and beyond with a real passion for the user experience of the Tread+. I mean, really, really more emotionally involved with that product than anything we’ve ever done and really, that reaction is what confirms my opinion that we are. more likely to fail.”

Despite their many efforts, the company is seeing higher than expected membership once again. It ended the quarter with 2.96 million affiliated fitness memberships, lower than the 2.99 million that analysts had expected, according to StreetAccount, and a decrease of about 30,000 memberships compared to the previous quarter. Churn came in at 1.5%, which was higher than the company’s projections and the 1.35% churn rate that analysts had been expecting.

Earlier this year, Peloton launched a new tiered pricing strategy for its app — a key part of its growth strategy — that included a free tier. The idea was that users would fall in love with Peloton’s content and spring for a paid subscription, which comes with a much wider variety of classes, but that bet is still to come.

“With limited marketing support, we saw over a million users download the free version of our App. Our brand relaunch was successful in continuing to resonate with our key demographic, and also attracted more male, GenZ, Black, and LatinX groups than before the relaunch. That’s the good news,” McCarthy said in a letter to shareholders.

“The bad news is that we were less successful in engaging and retaining free users and converting them to paid memberships than we had hoped.”

In response, the company shifted its marketing spend to focus on the company’s paid offering, which drove a higher-than-expected mix of high-priced subscribers. Second, he worked to improve the user experience to make it easier to find classes.

It ended the quarter with 763,000 paying Peloton app subscribers, 65,000 less than the previous quarter. Churn for its paid app subscription came in at 6.3%, below the company’s expectations. Analysts had expected 768,200 app subscribers, according to StreetAccount.

Engagement with Peloton’s content, measured by time spent on the platform, was up 6% in the quarter. Users are taking longer classes and more types of classes than a year ago, the company said.

In late September, Peloton announced a five-year partnership with a former competitor Lululemon that brought Peloton’s premium fitness content to the apparel retailer’s workout app. The partnership marked the first time Peloton was willing to share its content with another company as it looked to attract Lululemon’s 13 million members and get them to sign up for its subscriptions.

Content was made available to Lululemon members on Wednesday, and the company expects the revenue-sharing deal to add $10 million to fiscal second-quarter sales, chief financial officer Liz Coddington said on a call with analysts.

The company also announced a multi-year partnership with the NBA and WNBA, which agreed to name Peloton as the official fitness partner of the sports leagues. As part of the partnership, NBA League Pass — the league’s live game subscription service — will be available for streaming across Peloton devices. The company also has plans to develop NBA and WNBA themed fitness classes.

In addition to Lululemon, the NBA and the WNBA, Peloton has launched partnerships with the Liverpool Football Club, the University of Michigan and the New York Road Runners with more to come.

McCarthy said there wasn’t a brand in the world that “wouldn’t kill to partner with Peloton right now.”

“People have been knocking down our door to talk about different ways to work with us,” he said.

When it comes to hardware, Peloton now sells its Row device in Canada and its Bike and Bike+ in Austria, its fifth market outside the US, as it tries to sell of their affiliate fitness products, which have been declining.

All of the strategies are part of McCarthy’s goal to return the company to growth and increase membership so that it can eventually find a path to profitability. In the previous quarter, Peloton saw higher-than-expected churn that the company suspected was related to bringing back its bicycle seat role, along with seasonality.

The post, which had a tendency to separate and break unexpectedly during use and left some cyclists injured, was recalled in May and affected more than 2 million bikes. In the previous quarter, the recall cost the company $40 million, far more than expected.

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