You knew there was a reason Peloton Interactive (PTON 2.53%) announced it would be selling its connected fitness equipment and accessories on Amazon just before it reported earnings: It wanted to soften the blow of a disastrous fiscal fourth-quarter report.
The workout equipment maker lost a massive $1.2 billion as sales of its connected stationary Bike and Tread plummeted, so getting out in front of that story by saying it is setting up a storefront on Amazon to reach a wider audience might mask the carnage it suffered during the quarter.
Image source: Peloton Interactive.
Disconnecting from growth
It's hard to overstate how brutal Peloton's fourth quarter was as it capped off an already horrible year.
Product revenue plunged 55% to $295.6 million while subscription revenue grew 36% to $383.1 million, marking the first time ever it made more from selling subscriptions than equipment. Yet the number of subscribers it added grew by just 4,000 during the quarter, while the number of workouts they performed in any particular month tumbled 26% from the year-ago figure. It all resulted in a net loss that quadrupled from 2021.
Peloton managed to fall far short of Wall Street's already gloomy outlook with a per-share loss of $8.74 compared to analysts' estimated loss of $5.71 per share. Yet management tried to put on a happy face, saying most people will look at the glass as half-empty (or more), while it preferred to see it half-full.
President and CEO Barry McCarthy told investors what he sees "is significant progress driving our comeback and Peloton's long-term resilience." The real story is how Peloton reduced its free cash flow losses from $650 million a quarter to just $415 million, and he maintains the connected fitness equipment maker will reach break-even cash flow in the back half of fiscal 2023.
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Key Data Points
Making a luxury brand more expensive
The problem is, the situation isn't likely to improve anytime soon. Already a high-priced luxury item, Peloton just raised prices on its products, months after having cut them. The price of the upscale Bike+ is increasing by $500 to $2,495, while the Tread is rising $800 to $3,495, a level 40% above the pre-cut price. And it's doing so at a time when consumers are being socked by inflation, high energy costs, and rising interest rates amid fears of further economic contraction.
Peloton's guidance for its first fiscal quarter highlights those bleak prospects, forecasting sales to be in the range of $625 million to $650 million, down 21% from the $805 million it generated a year ago and well below the average analyst estimate of $783 million.
And as engagement with its classes deteriorate, Peloton says it will stop providing quarterly engagement metrics, though it will continue to report its subscription churn numbers, which are also getting worse. While not worrisome yet, at 1.41% that's also nearly double last quarter and the year before.
Hit the unsubscribe button
McCarthy says he wants to transform Peloton into more of a subscription-based company than one that sells equipment, because subscriptions are higher-margin products. Yet having raised its subscription price to $44 a month from $39 earlier this year, it may be undercutting its ability to do so, which is reflected in the flattish subscriber numbers reported.
Peloton is forecasting these numbers will be flat in the first quarter, too, and it's quite possible they might even decline, considering consumers might need to tighten their belts even further.
The company has so far been unable to respond to changing consumer exercise habits since the economy reopened, and while it's attempting a number of new initiatives, such as letting consumers put together their own equipment and opening an Amazon storefront, there's no indication any of these measures will have a discernible impact on reversing its decline.
