This morning, Peloton released its first quarter fiscal year 2024 results. In this first quarter, CEO Barry McCarthy remarked that Peloton “had a solid quarter and performed above guidance.” Stocks were down in pre-market trading prior to the call, however, throughout the day have been steadily rising.
McCarthy sees the reintroduction of the Tread+ as a big driver if successful. While they had mentioned that the Tread+ will be back in the marketplace “soon”, this is the first that we have seen the new price tag of $5995. Previous Tread+ owners who would like to return theirs need to arrange the return by next week. The Tread+ orders will draw from more than 10,000 pieces of existing inventory, and will be fitted with the new part for safety, as part of the CPSC recall
While the sales during this quarter were higher than expected, the losses underperformed Wall Street’s expectations.
But McCarthy’s tone was upbeat and hopeful, highlighting their collaborations with Liverpool Football Club (LFC), the University of Michigan, lululemon, New York Road Runners and NBA/WNBA. He said that they are “just getting started” with partnerships.
From the investor letter:
“On the heels of our partnership announcements with LFC and Michaigan and before the announcement of our partnership with the NBA and WNBA, we saw exceptionally strong inbound interest in partnering with us from universities and professional sports leagues. This includes inquiries from more than 50 top-ranked, Division 1 universities and pro sports teams, organizations, events and agencies in the US and around the world.”
Peloton CMO Leslie Berland joined McCarthy and CFO Jill Coddington, “breaking with tradition” in having other executives besides just the CEO & CFO join earnings calls. Berland spoke about the five-year partnership with lululemon, and having had content for their subscriber going live as of November 1, that Peloton was benefiting “as we we speak.” McCarthy highlighted the apparel component which saw a huge increase in store traffic with the launch in Chicago as part of Peloton on Tour. As we had reported Peloton will become the exclusive digital fitness content provider for lululemon and lululemon will become Peloton’s primary apparel partner.
They shared that Peloton would get around $10 million in revenue from lululemon second quarter for having the Peloton classes on lululemon’s platform.
Another positive that McCarthy spoke of as growth revenue is Peloton’s Bike Rental subscriptions, also referred to as Fitness-As-A-Service (FAAS). This initiative was launched in 2022 and this quarter they ended with 54 thousand rental subscribers in the US and Canada. Expectations for the end of fiscal year is ~75 thousand subscribers and to grow the Bike rental subscriptions for FY2024 by ~90%+ Y/Y. 60% of those recently surveyed respondents said that they wouldn’t have joined Peloton if not for the flexibility of the rental offer. The Bike rental program was recently expanded into Germany and Peloton plans to expand the option to the UK and select college campuses in the US this fiscal year.
The company reported a first quarter loss of 44 cents a share on a revenue of $595.5 million. Analysts had expected Peloton to post a loss of 34 cents a share on revenue of $589 million. In the same period of last year, Peloton posted a loss of $1.20 a share on a revenue of $617 million.
Then came the bad news from the investor letter related to subscriber numbers, even if more than one million downloaded the free version of the app:
“The bad news is that we were less than successful at engaging and retaining free users and converting them to paid subscribers than we expected. We did two things in response. First we shifted our marketing spend to focus on our paid app. That shift worked well and is driving a higher mix of premium priced App+ subscribers than we were expecting. Second, we redoubled our efforts to remove onboarding friction in our App to support new users in finding their first Peloton classes. This will be a long term work in progress.”
Peloton also lost more subscribers and members since the last quarters. The number of Peloton members dropped from 6.5 million to 6.4 million. Paid connected fitness subscribers dropped from 2.997 million to 2.964 million. The number of paid app subscribers was also down from 828,000 to 763,000.
Berland also mentioned the excitement around the Peloton Entertainment app & beta. They have just announced that Peloton Members with NBA League Pass will be able to stream games live directly on their devices, along with their favorite TV shows, movies and more. No official word of when this will be coming out of beta.
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