This morning, Peloton released its fourth quarter and full year fiscal 2023 financial results, and then held a call with investors and analysts to discuss the results. While Peloton posted a wider than expected loss, it topped expectations on revenue. Shares of Peloton stock were trading down more than 20% following the release of the earnings data, and are still down at the time of publishing.
One big piece of news for members was the return of the Peloton Tread+ with pre-orders starting this holiday season. Peloton will begin refitting existing Tread+ products with the rear guard, which the CPSC approved earlier this summer, at the beginning of 2024. The company shared they have had nearly 17,000 requests for the rear guard from existing Tread+ owners so far. They expect to resume pre-sales for new Tread+ devices in the US for the holiday season, with deliveries starting six weeks later. They did not give an expected delivery date, and did note that the $6000 machine will be delivered from existing inventory of 10,000 units.
While the projected outlook from Peloton executives on the call was positive, CEO Barry McCarthy spoke of unwelcome surprises such as the DISH legal settlement and seat post “kerfuffle.” Peloton stated they have had nearly 750,000 requests for the seat post, of which 340,000 had been fulfilled. The remaining replacements will be delivered by the end of September, which is three months earlier than expected.
The company also shared that they currently have around 80,000 membership currently paused, and they believe around 15,000 to 20,000 of those are due to the seat post recall. The recall lead to an additional accrual of $40 million for actual costs incurred as well as an anticipated future recall-related expenses.
In regards to marketing and rebranding, McCarthy spoke highly of the marketing team, with Leslie Berland joining as Chief Marketing Officer from Twitter at the beginning of the year, and the new digital app pricing strategy. There has been a higher number of app subscriptions at the App+ level, which was not expected. Since the relaunch there has been 900,000 downloads of the app, with two-thirds being new to the brand. They will continue to ensure the app interface continues to evolve to the new subscribers, as it once had been an adjunct to their equipment. They are seeing a shift in Peloton users, with more men, Gen Z, Black and Hispanic consumers.
McCarthy explained that the stock prices “don’t not reflect the energy in the building” and they reported the following numbers:
- Loss per share: 68 cents vs 38 cents expected
- Revenue: $642.1 million vs $639 million expected
- Net loss $241.8 million compared to a loss of $1.26 billion a year earlier
Peloton noted that they did achieve being cash flow positive in the quarter, if you excluded the DISH network settlement. This has been a goal of McCarthy and the company through the past several quarters, as they have been restructuring and cutting costs to reach this objective.
Peloton had $1 million cash flow with the settlement excluded or a negative cash flow of $(74) million with it being factored in. However, McCarthy noted that they company did not expect to remain cash flow positive for the next two quarters. This is “mainly due to seasonality of our hardware sales, timing of inventory payments, marketing spend as we invest for growth and prepare for the holiday season, and one-time cash outlay for seat posts”. However, they do forecast being cash flow positive again in the second half of the fiscal year.
Peloton is expecting revenue of $580 to $600 million in the next quarter (Q1 2024), which is below analyst expectations for what would be forecast.
As expected, Peloton’s sales dropped in their fiscal fourth quarter due to seasonality. McCarthy said “The slowdown exceeded our expectations through May and through the first three weeks of June as consumer spending shifted towards travel and experiences.” He added, “Then eight weeks ago the trend reversed itself and we began to see a reacceleration in hardware sales.”
Peloton also projected a loss of subscribers, although the numbers are up 4% year over year which was part of the company’s projections. They believe that 15,000 to 20,000 inactivations of memberships is likely due to the recall, bringing their churn to 1.8%.
Peloton did note that their rental service totals 48,000 subscribers and the launch of Peloton Certified Refurbished totals 6,500 in sales in Q4 with bike rentals recently launching into Germany.
In other product news, we previously posted about Peloton teasing new bike colors. This came into play yesterday as part of Peloton’s new partnership with the University of Michigan. McCarthy confirmed this would come to consumer bikes soon, saying:
For the last ten years Peloton has been the Henry Ford of stationary bikes. We sold any color bike frame you wanted as long as you wanted black. I’m excited to announce a change in strategy. This quarter we began work to bring a variety of limited edition bike frame colors and graphics to both the consumer and commercial markets, like yesterday’s University of Michigan announcement. Expect to hear more about this exciting initiative this fall.
We also announced last week about the launch of Peloton for Business, which was touched upon in the call. Peloton is using this to drive their revenue and secure new customers. The launch will allow companies, like Volvo, to access the Peloton app, all access memberships and discounted hardware including the Bike, Bike+, Tread and Guide.
Peloton also expects to add the Bike+ and row to their commercial offerings soon as well tool – which will add more opportunities for businesses to have Peloton hardware in their settings. They also said they planned to add the Tread+ to be commercially available as well once it has fully returned for sale.
And, as we reported yesterday, Peloton launched a new program with NCAA Division 1 schools which was discussed on the call – with the University of Michigan being the first partner. This will see co-branded bikes on campus and on the sideline during football games, in addition to other opportunities. In additions, students will be able be able to get a discount on the Peloton App One tier (though this discount is available to any student, not just those attending aa partner school).
McCarthy continues to be upbeat about the change since he joined 18 months ago and said “Not since I stepped into the CEO role have we had as many irons in the fire to drive both short- and long- term growth. It’s a BIG deal, and it serves to remind us that Peloton’s transformation continues with urgency to pursue sustained, profitable growth.”
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