This morning Peloton released their Q4 2022 earnings data.
In the earnings call Peloton reported widening losses with lack of sales, declining memberships, and a heavy $415 million investment into restructuring the company to be the main causes. Peloton shares dropped around 20% on the news – erasing the gains following yesterday’s announcement of Peloton’s new partnership with Amazon.
For the quarter, Peloton had an operating loss of $1.2 billion. However, $415 million of that loss was due to restructuring changes. Peloton was able to reduce their negative free cash flow lost for the quarter. Peloton CEO Barry McCarthy sees this as significant headway, saying “The loss reflects the huge substantial progress we made this last quarter re-architecting the business to reduce the current and future inventory overhang, converting fixed to variable costs, and addressing numerous supply chain issues”.
Peloton’s average workout per subscribers declined from 18.8 per member to 14.8 – and Peloton shared they will stop reporting this number moving forward.
Peloton’s churn increased from 0.75% to 1.41%, however, a larger churn was expected due to the increase of the subscription cost earlier this year..
McCarthy stated that the main goals during Q4 have been to reduce Peloton’s inventory, which he called an “existential threat to the business”, and to outsource the manufacturing of all hardware. He declared both of the goals as successful. And while the connected fitness market is down 51% in the US, Peloton does still have 17% of the market share, which is not insignificant, but McCarthy realistically states that, “we expect the market for connected fitness to remain challenging for the foreseeable future in FY23”.
Some of the cash flow reduction initiatives the Peloton has implemented in Q4 include closing a large number of the Peloton Showrooms in North America, outsourcing all manufacturing, closing warehouses and moving to all 3rd party deliveries and repair calls, extensive layoffs including many employees of Peloton’s member support teams, and the price increase of the Tread and Bike+ back to what McCarthy calls “a return to premium pricing”.
The big news yesterday, that Peloton Bikes, Guide, Apparel, and Accessories will now be for sale on Amazon will also hopefully provide a boost in sales for the company. McCarthy says of the Amazon deal,
In the US Amazon has become the default first-stop shopping destination for hundreds of millions of customers worldwide. Our Peloton store on amazon.com will bring a selection of our products closer to the Amazon’s US customer base and allow us to directly act on fitness related shopping queries occurring on Amazon every week”.
Part of this deal with Amazon also includes Bikes being shipped and delivered by Amazon, with customers assembling the equipment themselves. This of course saving Peloton vast amounts of money on warehouses, shipping, delivery, and the white glove service they were once known for.
McCarthy’s overall goal for Peloton is to “reach breakeven cashflow on a quarterly basis in the second half of FY23”, and says that as FY 2023 unfolds he will have more to say about Peloton’s operating plans.
You can read more about Peloton’s Q4 Earnings Call from The New York Times, Yahoo! Finance, and CNBC, and many other news outlets.
What are your thoughts on the latest news from the Q4 earnings call? How do you feel about CEO McCarthy’s optimism for the company’s future?
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Interestingly, I think you have to look at the elephant in the room. Local fitness studios took a beating during the pandemic, as members had to stay home instead of coming to the studios to exercise. Those studio members looked for alternate forms of workouts and found them in Peloton. Peloton enjoyed the growth and did so well. They filled a niche that had not been there before. Many local studios closed. Now that the world has reopened, local studios are starting back up. Peloton’s customer base is, in part, shifting back to “real world” conditions and looking at the personal service and local options. I love my Peloton, but without the pandemic, I likely would not have ever tried it out. I plan to stick with it, but I’m sure that there are others that just want the local studio experience.