Peloton today announced their Q4 FY2024 earnings with words like “strong,”and “exceeding” kicking off the shareholder letter. With the rather upbeat letter, does it indicate the turnaround that the stock markets has been looking for from the connected-fitness company? In pre-market, the stock was trading up 16.7%, and have been fluctuating greatly.
What seems to be the news that most analysts and investors were looking for is the update on the search for Peloton’s new CEO. Based on the shareholder letter, that search continues and remains “top of mind”. CO-CEO Karen Boone said they are focused on moving quickly while finding the right candidate, and that they have narrowed it down to promising candidates. While no timing was revealed she said they were hopeful the new CEO would be joining the next earning call.
Peloton did show a modest Y/Y revenue growth in Q4 for the first time since Q2 FY2022. The total revenue in the quarter was $644 million, up 0.2% and the subscription segment delivered $31 million of revenue, up 2.3% Y/Y. Total revenue was $643.6 million for the three months ended June 30, 2024 comprised of $212.1 million of Connected Fitness Products Revenue and $431.4 million of Subscription Revenue, which outperformed their $618 million to $643 million implied guidance range.
Peloton successfully completed the refinancing of their balance sheet, which fulfilled the goals of “deleveraging and extending our maturities with more flexible terms at a reasonable cost of capital. We decreased debt by roughly $200 million and our average maturity has been extended to 2029. With our expectation of sustainable positive Free Cash Flow, we are exploring how to best deploy excess cash on our balance sheet as part of an overall capital allocation strategy.”
They expanded in the shareholder letter, saying:
“We ended the 2024 fiscal year with strong Q4 performance, meeting or exceeding our guidance on all key metrics and making continued progress on a number of our financial goals. With a stable financial foundation now in place, we can focus on innovation in a more strategic way, enhancing our Member experience and driving sustainable, profitable growth over the long term. In Q4 we continued to delight our Members, launching new and compelling content across our portfolio with a particular emphasis on Tread programming, as well as social tools designed to further build community on our platform.”
From the letter we also learned that the Bike rental program was ceased on August 1 due to low levels of refurbished inventory. With the rental program for the Bike discontinued, Peloton saw higher take rates for their other cost-conscious offerings, including Bike+ rental, refurbished original bike sales and financed new Bike sales. They stated, “these alternative programs have stronger unit economics than original Bike rental, with more cash paid upfront and stronger retention profile.”
They are pleased with their partnership with lululemon so far and they excited about their multiyear licensing agreement with Google Fitbit which will offer a wide portfolio of Peloton classes in the US, the UK, Canada and Australia.
Big news for Tread owners and runners is that growing that business is still a top priority for Peloton. The revenue from their treadmill portfolio grew 42% Y/Y in Q4 and Tread+ has the highest NPS of all their Connected fitness products, having a 76. Does this mean that the Tread+ may make the journey across the pond in the future? However, it is rumored that the size of the Tread+ coupled with the standard-sized door hinders installation of the product in most homes in the UK is an issue keeping this from happening. No news on this from Peloton and it seems that the UK market still patiently waits for the Row.
Continued good news for Tread and Tread+ owners are their growth efforts with enhancements like Pace Targets, which is a new offering that enables instruction of personalized intensity levels rather than guidance based on treadmill speed. Peloton has rolled this out with information sessions with members at both PSL and PSNY. Peloton has also launched their Half Marathon Training Program and a new marketing campaign for potential customers. This campaign saw an increase in web traffic to Tread product pages and new pages created to educate consumers on these product offerings.
Peloton will be introducing a new $95 USD / $125 CAD used equipment activation fee for bikes purchased on the secondary market. This is to ensure that new Members receive high quality onboarding experiences, which Peloton is known for, and they will offer a virtual custom-fitting for Bike and Bike+. These new subscribers will also have access to a history summary of the pre-owned hardware and will have access to discounts on accessories and spare parts. Peloton will continue to look for ways to improve the Member experience in this important channel. They also note this will increase profit for the company.
Peloton’s Precor business has again shown progress on the turnaround. The revenue there grew more than 20% Y/Y and the gross margin improved more than 22 percentage points Y/Y, which was in part driven by the exit from manufacturing operations in North Carolina. Precor has also reduced their operating expenses more than 40% Y/Y.
They also highlighted Find Friends to connect with your existing network to enhance the platform’s community-building and they expect that these social features will drive Member retention and organic acquisition over time. Of course, there are still privacy concerns around this feature.
Peloton noted that their Member satisfaction scores (MSAT) have risen every month since December 2023 from 3.4 to 4.1, which is an increase of 22% over that time period.
Peloton ended the quarter with 2.98 million Ending Paid Connected Fitness Subscriptions, reflecting a net decrease of 75,000. It did exceed internal expectations as a result of higher gross additions in the first party, third party retail and secondary market channels.
The end of the quarter show 615,000 Ending Paid App Subscriptions, reflecting a net reduction of 59,000 in the quarter. Average Monthly Paid App Subscription Churn was 8.4%. This could be attributed to a corporate partner not renewing their agreement.
This is a developing story and will be updated.
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