Peloton Interactive (PTON 5.12%), the connected fitness specialist, released its fiscal 2024 fourth-quarter report on Aug. 22. The results showed a mix of notable profitability improvements and challenges in revenue and subscription growth.
For the period, which ended June 30, Peloton reported total revenue of $643.6 million, marginally exceeding management's guidance range of $618 million to $643 million. However, that was barely better than flat year over year. The company also achieved a free cash flow of $26 million and saw its adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) surge to $70 million, well above management's guidance for a loss of $5 million to $20 million. Overall, the quarter highlighted the company's strides in profitability, though revenue growth remains a concern.
| Metric | Fiscal Q4 2024 | Fiscal Q4 2024 Guidance | Fiscal Q4 2023 | % Change (YoY) |
|---|---|---|---|---|
| Total revenue | $643.6 million | $618 million to $643 million | $642.1 million | <0.1% |
| Free cash flow | $26.0 million | "Modest positive FCF" | ($74.0 million) | N/A |
| Adjusted EBITDA | $70.0 million | ($5 million to $20 million) | ($34.7 million) | N/A |
| Ending paid connected fitness subscriptions | 2.98 million | 2.96 million to 2.98 million | 2.997 million | (1%) |
| Ending paid app subscriptions | 615,000 | 600,000 to 610,000 | 828,000 | (26%) |
Source: Management's guidance from fiscal Q3 2024 earnings report released May 2.
Understanding Peloton
A pioneer in the connected fitness space, Peloton Interactive offers a range of fitness products and subscription-based services that provide live and on-demand classes. The company has built a loyal member base that accesses its extensive library of fitness content across various modalities, including cycling, running, and strength training. As of the end of its fiscal Q4, Peloton boasted 6.4 million members.
Recently, Peloton has been focusing on innovation and diversification to maintain its competitive edge. It emphasized treadmill programming, and in the quarter saw 42% growth in connected fitness revenue from its treadmill products. Additionally, it launched a Bike+ rental program in the U.K., part of its ongoing effort to attract and retain customers through new and improved offerings.
Quarterly Highlights
Peloton's fiscal Q4 performance was a mixed bag. Financially, the company achieved positive free cash flow of $26 million, in line with management's expectations. Adjusted EBITDA came in at $70 million, significantly exceeding the anticipated range. Furthermore, net cash from operating activities improved to $32.7 million, compared to a $55.4 million loss in the prior-year period.
The essentially flat revenue metric, however, was a point of concern. Subscription revenue increased by 2% to $431.4 million. However, the total number of ending paid connected fitness subscriptions decreased by 1%, consistent with management's guidance. Ending paid app subscriptions also dropped by 26% compared to the previous year, reflecting the broader challenges in sustaining digital app penetration.
The company did continue to enhance member experiences through strategic partnerships. Its collaboration with Alphabet's (GOOG 3.02%) (GOOGL 3.24%) Google Fitbit to distribute fitness classes, as well as its high-profile content initiatives with brands like Lululemon (LULU -19.71%) and TikTok, demonstrate a concerted effort to diversify engagement channels and attract a varied audience.
In terms of operational efficiency, Peloton realized notable cost savings. The company’s restructuring efforts have contributed to significant reductions in operating expenses. Furthermore, the focus on more sustainable offerings, such as the Bike+ rental program and sales of refurbished inventory, reflects a shift towards a leaner, more resource-efficient operational model.
Looking into material events, Peloton's restructuring also included ceasing rentals of its original Bike due to insufficient refurbished inventory. This move aligns resources towards more promising areas like the Bike+ rental program and sales of refurbished inventory, enhancing the company's operational efficiency and potential profitability.
Looking Ahead
Peloton’s management provided a cautious outlook for the current quarter and the full fiscal year. For Q1 fiscal 2025, revenue is expected to be between $560 million and $580 million, with adjusted EBITDA forecast to be between $50 million and $60 million. For fiscal 2025, management anticipates total revenue to decline to a range of $2.4 billion to $2.5 billion, with significant improvements in adjusted EBITDA, which is expected to land between $200 million and $250 million.
Investors should keep an eye on several key areas. Sustained innovation and product diversification, particularly in areas like treadmill programming and digital app offerings, will be crucial. Additionally, Peloton’s efforts in forming strategic partnerships and enhancing member engagement through quality content will be vital if it is to stem the tide of subscription loss. Cost management and operational efficiency will remain pivotal as the company endeavors to achieve lasting profitability amidst ongoing market challenges.
