What happened

Shares of connected-fitness company Peloton Interactive (PTON 4.29%) plunged on Thursday following the release of its latest quarterly financial results. As of 11:30 a.m. ET, Peloton stock was down nearly 15%.

So what

Today, Peloton reported financial results for its fiscal third quarter of 2023, which ended on March 31. Starting with the top line, the company generated Q3 revenue of $749 million, down 22% year over year and down 6% quarter over quarter. While revenue was down, it was better than what analysts had projected.

Subscription revenue drove Peloton's top-line surprise. The company's revenue is comprised of one-time hardware sales and recurring monthly subscription revenue. In Q3, hardware revenue was down a whopping 45% year over year to $324 million. By comparison, subscription revenue was up 15% to almost $425 million, thanks to growing its connected-fitness subscriber base 5% to 3.1 million.

Peloton underperformed management's guidance regarding its gross profit margin. Management guided for a margin of 39% whereas it had a margin of 36%. Still, that was the company's best margin in fiscal 2023.

Now what

Given that Peloton's numbers were better than expected, I'm not quite sure why the market is reacting so negatively today. Indeed, the stock initially popped in after-hours trading before reversing once the market opened.

My best guess is that the market still recognizes that Peloton has a long ways to go, even though it's making progress in its turnaround. Its Q3 loss from operations of $266 million is greatly improved from its loss of $736 million in the same quarter of fiscal 2022. However, that's still a huge loss in absolute terms.

Moreover, management expects to lose some subscribers in the upcoming fourth quarter and it expects revenue to decline. That's typical with the seasonality of this business. That said, the forecast doesn't give shareholders much to look forward to in the next few months. And that might be why investors chose to sell today, even though certain metrics do appear to be improving.