This morning, Peloton released their fiscal year Q2 2023 earnings data.
Overall, Peloton reported a greater-than-expected revenue of $792.7 million dollars, while analysts had expected this to be around $710 million. This resulted in an overall net loss of $335.4. Peloton’s loss per share was 98 cents – which analysts had expected to be around 65 cents loss per share.
Peloton CEO Barry McCarthy shared optimism on what is to come, saying:
This was by far our best quarterly performance in my twelve months with Peloton. Most of the executive team is also relatively new to Peloton and new to their teams. Given what we’ve already accomplished, imagine what’s possible once the team finds its groove.
If this past year has been about restructuring Peloton’s business and stabilizing its financial performance (and it has been), then almost certainly the next twelve months will be about capturing the moment to restore Peloton’s growth as we lean into the future of Connected Fitness.
The shareholder letter released this morning points out Peloton still has access to over $1 billion worth of cash reserves.
We ended 2Q with $871.0 million in unrestricted cash and cash equivalents. We also have a $500 million revolving credit facility, which remains undrawn to date.
Peloton had a free cash flow of -$94 million for the quarter – though they point out that if you remove the costs of right-sizing their contractual obligations with some of their suppliers, they would have been positive free cash flow of around $8 million. One of Peloton CEO Barry McCarthys’ goals has been to return the company to free cash flow positive – which they hope to fully achieve in the next two quarters.
Peloton continues to lose money on their hardware, as they have a net gross profit loss of $42.8 million on their connected fitness products – which translates to an 11.2% gross margin loss.
Peloton expects a drop in hardware sales next quarter, as FY Q2 2023 included the popular holiday sales. They are forecasting between $690 and $715 of total revenue for FY Q3 2023.
We expect lower Connected Fitness unit sales as we exit the holiday selling season and promotional activity eases. As with last quarter, we believe macro-economic uncertainty is impacting consumer spending patterns and that near-term demand for Connected Fitness hardware is likely to remain challenged. Our forecast incorporates a mix shift of CF unit sales from our first-party web channel towards our bike rental program and third-party retail partners.
However, a big highlight Peloton pointed out was that they continue to create more revenue from subscriptions than they do from the sale of hardware. Barry McCarthy said the following in the investor letter:
Despite seasonally strong hardware sales, for the third consecutive quarter, we generated more revenue from subscriptions than we did from hardware sales. This trend is gross margin accretive because subscription gross margins significantly exceed hardware gross margins. If this trend continues, which seems likely since we sell more hardware in Q2 than any other quarter of the fiscal year, it represents a structural shift toward improving GM’s in the business.
Peloton also reported that the gross margin on their subscriptions is 67.6%.
Peloton reported the same number of Peloton members as the previous quarter of 6.7 million. Within that, they reported 3.033 million connected fitness subscribers – a gain of 60,000 members from the previous quarter.
While the majority of the focus of the earnings letter is on the revenue and numbers, they did take a moment to point out they do have goals to fix some pain points for members, saying:
To our Members I would like to say that notwithstanding our progress this year, we know we still have issues to fix, particularly in last mile delivery and Member Support, and I commit to you we are working hard to fix both.
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