Peloton sales plummet, shares skid

Peloton shares plunged Tuesday after the company reported fewer sales and a wider-than-expected loss in the most recent quarter.

The fitness giant posted a net loss of $757.1 million, or $2.27 per share, compared with a loss of $8.6 million during the same period a year ago, while revenue slipped 24% year over year to $964.3 million, compared with $1.26 billion in the year-ago period. 

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Peloton's Connected Fitness products accounted for $594.4 million in sales, down 42% year over year, due to a reduction in consumer demand offset by Tread sales as well as $18 million in Tread+ returns related to the company's May 2021 recall. 

Subscriptions revenue grew 55% on an annual basis to $369.9 million. The company ended the quarter with 2.96 million Connected Fitness subscriptions, representing 195,000 net adds in the quarter and 42% year-over-year growth. Average net monthly connected fitness churn improved to 0.75% during the period, compared with 0.79% in the second quarter. Digital app subscriptions ended the quarter at 976,000, up 114,000 from the second quarter and 10% year over year.

Since taking the reins of the company in February, Peloton's new CEO Barry McCarthy has been focused on three areas: stabilizing cash flow, getting the right people in the right roles and growth. 

"Turnarounds are hard work. It’s intellectually challenging, emotionally draining, physically exhausting, and all consuming. It’s a full contact sport," McCarthy wrote in the company's quarterly letter to shareholders. "Turnarounds also are incredibly stimulating and engaging, the decisions never more consequential, the urgency ever present, the teamwork never more central to the mission."

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In February, Peloton announced a series of cost-cutting measures expected to deliver at least $800 million of annual run-rate cost savings. The company's restructuring has included cutting 2,800 jobs. 

The company expects to deliver roughly $40 million in incremental revenue monthly due to recent price changes. Lowering the cost of its hardware has increased revenue by more than $25 million per month. If churn remains near current levels, Peloton expects the June 1 price increase on All-Access monthly memberships could result in a roughly $14 million increase in revenue monthly.

In addition to cost-cutting, Peloton signed a commitment letter with JP Morgan and Goldman Sachs to borrow $750 million in five-year term debt to strengthen its balance sheet. Peloton finished the third quarter with $879 million in unrestricted cash and cash equivalents, leaving the company "thinly capitalized." Peloton's goal is to return to positive free cash flow in fiscal year 2023.

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Peloton has a total of 7 million members. McCarthy has set a goal to increase that member base to 100 million members, equivalent to roughly half of the world's global gym memberships. 

"It’s a long, long way from where we sit today," McCarthy said. "But we sit at the epicenter of technology enabled fitness, a long-term secular growth trend."

Peloton forecasts fourth-quarter revenue in the range of $675 million to $700 million and anticipates up to 2.98 million connected fitness subscribers, taking into account a "modest negative impact" from its subscription pricing increase starting June 1. The company has already seen a "small increase" in cancellations due to the change.