Peloton: The Future of Fitness is Here

Peloton, the innovative fitness equipment company, recently reported its financial results for the second quarter of its fiscal year, ending December 31st, 2022. The results showed a narrowing of its net losses from the previous year, which is good news for the company that has not turned a profit for eight straight quarters.

The company’s CEO, Barry McCarthy, a former Spotify and Netflix executive, believes these results could be a potential “turning point” for Peloton.

Peloton's revenue beat Wall Street's expectations, coming in at $792.7 million versus the expected $710 million.

Peloton Reality

The company’s loss per share was 98 cents, which was wider than the expected 64 cents. Despite this, the company’s stock jumped about 20% on the news. The reported net loss for the quarter was $335.4 million, a decrease from the previous year’s loss of $439.4 million.

While the company’s revenue was down 30% year over year, it exceeded its expected range of $700 to $725 million. Connected fitness product sales, which typically see a surge during the holiday quarter, declined 52% YoY.

On the other hand, subscription revenue rose 22%. In his letter to investors, McCarthy stated that he expects this trend to continue. The company ended the quarter with 6.7 million total members, 3.03 million connected fitness subscriptions (up 10% YoY), and 852,000 app subscribers (down 1% YoY). The company has a goal of getting 1 million people to sign up for trials of its app in the next year.

Peloton’s gross margins were 29.7%, up from 24.8% in the previous year. Although, it should be noted that the total gross margin declined from the previous quarter due to increased promotions during the holiday quarter. The company’s connected fitness products had negative 11.2% gross margins, while subscription sales had 67.6% gross margins.

The Company Forecasts

The company forecasts lower revenue but higher margins for the next quarter, with sales estimated to be between $690 million and $715 million, and a total gross margin of about 39%. Wall Street analysts’ revenue estimate for the quarter is $692.1 million. The company is also expecting between 3.08 million and 3.09 million connected fitness subscribers.

Peloton has been undergoing a broad turnaround strategy since CEO Barry McCarthy took the helm a year ago. The company's stock is up about 62% so far this year, closing at $12.93 on Tuesday, with a market value of approximately $4.4 billion.

Since becoming CEO, McCarthy has made several changes to improve the company's viability, including cutting its workforce by more than half, expanding its Bike rental program nationwide, selling certified pre-owned Bikes, introducing a rowing machine, and partnering with Amazon and Dick’s Sporting Goods to sell its Bikes and Treads.

McCarthy’s top priority was to manage cash flow and get the company back in the black, which he believes the company has nearly accomplished.

The company's free cash flow was negative $94.4 million, a significant improvement from the previous quarter's negative $246.3 million and negative $546.7 million from the previous year. McCarthy is now ready to pivot from trying to survive to focusing on growth and profitability.

In conclusion, Peloton’s recent financial results showed a narrowing of its net losses and higher-than-expected revenue. CEO Barry McCarthy believes these results could be a turning point for the company, which has been undergoing a broad turnaround strategy. Peloton’s subscription business