A Peloton bike in a showroom in New York, U.S., Wednesday, November 1, 2023. Peloton Interactive Inc. is expected to report earnings on November 2.
Michael Nagle | Bloomberg | Getty Images
Platoon posted a worse-than-expected holiday quarter on Thursday after buyers failed to shell out for its new AI-based product line and turned away from higher subscription prices, sending shares down more than 20% in early trading.
The connected fitness company missed Wall Street estimates for revenue and earnings and fell short of its own internal sales goals in the quarter ended Dec. 31 — typically the strongest for Peloton’s hardware revenue.
The company said it expects weak sales to continue in the current quarter. Peloton expects revenue between $605 million and $625 million, below expectations of $638 million, according to LSEG.
The weak results, coupled with moderate guidance, are the first clues investors have that Peloton’s product overhaul may not be the sales driver the company was hoping for.
The revamped assortment, including AI-powered tracking cameras, speakers, 360-degree rotating screens and hands-free control, was designed to increase sales and attract new customers. But Peloton’s results show that demand has been slow.
Although Peloton’s revenue may be disappointing for investors, the company continues to earn gains in improving its profitability. During the holiday quarter, the company generated $81 million in adjusted earnings before interest, taxes, depreciation and amortization, better than the $73 million analysts expected, according to StreetAccount.
After announcing plans to lay off 11% of its staff last week, the company expects to generate between $120 million and $135 million in adjusted EBITDA in the current quarter, better than the $119 million expected by analysts, according to StreetAccount.
It raised its full-year adjusted EBITDA guidance to between $450 million and $500 million, up from a prior range of between $425 million and $475 million.
This is good news for investors because it shows that Peloton has been able to innovate its product line without depleting its profitability.
Also Thursday, the company announced that CFO Liz Coddington was leaving Peloton to “pursue an opportunity outside of the industry.” She will remain in the role until March as the company searches for its next CFO.
Here’s how Peloton performed in its fiscal second quarter compared to what Wall Street expected, based on a survey of analysts by LSEG:
Loss per share: 9 cents versus 6 cents expectedIncome: $657 million versus $674 million expectedThe company’s net loss for the quarter was $38.8 million, or 9 cents per share, a significant improvement from the $92 million, or 24 cents per share, lost last year.
Sales fell to $656.5 million, down about 3% from $673.9 million a year earlier.
Since Peter Stern took over CEO of Pelotonhe worked to generate new revenue streams and capitalize on the company’s progress in improving profitability.
The new product line was one of his first big moments as CEO and included new prices for subscriptions and hardware. Despite higher prices, hardware and subscription revenues were lower than expected, indicating that unit sales were weak.
Hardware sales generated $244 million in revenue during the quarter, while subscriptions generated $413 million in sales, both below expectations of $253 million and $424 million, respectively, according to StreetAccount.
In a statement, Stern focused on improving the company’s profitability and said he was seeing “positive momentum” across the company.
“Our second quarter represented the most significant period of innovation at Peloton since our founding. At the same time, our financial performance demonstrated our continued operational discipline, resulting in 39% year-over-year growth in adjusted EBITDA and a 52% year-over-year reduction in net debt, proving that we can simultaneously innovate and increase profitability,” Stern said. “Our subscription base is highly engaged, our integrated business unit is growing and well-positioned to continue to do so, and member engagement with Peloton IQ is encouraging.”