Peloton (PTON) Q3 2021 financial loss increases

A Peloton stationary bike goes on sale at the company’s showroom in Dedham, Massachusetts, U.S., on Wednesday, February 3, 2021.

Adam Glanzman | Bloomberg | beautiful pictures

Peloton on Tuesday reported a broader-than-expected quarterly loss and a steep drop in sales, as inventory piled up in warehouses and ate up the company’s cash.

The connected fitness equipment maker also gave a weak sales outlook for its fiscal fourth quarter, citing lower demand. Prediction company subscription price increase plan may cause some users to cancel their monthly membership.

Shares of Peloton closed down nearly 9% at $12.90 on Tuesday, a new low for the stock. Its market valuation is more than $4 billion after hitting $50 billion early last year.

CEO Barry McCarthy said in a letter to shareholders, Peloton’s excess inventory forced the company to rethink its capital structure. Peloton ended the quarter with $879 million in cash and unrestricted cash equivalents, he said.

To address this issue, earlier this week, the company signed a binding commitment letter with JP Morgan and Goldman Sachs to borrow $750 million in five-year debt, according to the CEO. Two banks led Peloton’s IPO in 2019.

With fresh capital from a term loan, McCarthy said he is confident the company can return to positive free cash flow by fiscal 2023. “We have a lot of capital to do that,” he said. said on a post-earnings conference call. “No matter what happens in the economy. Stop it completely.”

In the letter, McCarthy said he is focused on stabilizing Peloton’s cash flow, finding the right people in the right roles and growing the business again. Expanding subscription revenue is central to McCarthy’s strategy, which he draws on from his previous experiences at Spotify and Netflix. He also said Peloton will soon sell its products through third-party retailers, a move the company has never taken before.

Here’s how Peloton did over the three-month period ending March 31 with what Wall Street expected, based on a survey of analysts by Refinitiv:

  • Loss per share: $2.27 vs. 83 cents expected
  • Turnover: $964.3 million vs. $972.9 million expected

Peloton’s loss for the fiscal third quarter increased to $757.1 million, or $2.27 per share, from a net loss of $8.6 million, or 3 cents per share, a year earlier. That’s larger than the 83 cents-per-share loss analysts are looking for.

Revenue fell to $964.3 million from $1.26 billion a year earlier. That number fell short of expectations at $972.9 million and marked the company’s first year-over-year decline in sales since the company went public in 2019.

Peloton said the drop was mainly due to a sharp drop in consumer demand due to Covid-19 pandemic‘speak. That was partially offset by higher treadmill sales.

But Peloton also noted that it faces higher-than-expected returns on its Tread+ machine, remember last Maythat total is about $18 million and is based on the company’s results for the quarter.

Peloton generated $594 million in revenue from its connected fitness products and $370 million from subscriptions in the most recent period.

The company ended the quarter with 2.96 million connected fitness subscribers, representing a net addition of 195,000. Connected fitness subscribers are those who own part of the company’s equipment and also pay a fee to join live and on-demand workout classes, from cycling to yoga to meditation.

Average monthly net-connected fitness activity time, which Peloton uses to measure connected fitness subscriber retention, improved to 0.75% over the period, compared to 0.79% in the second quarter.

A lower churn rate is good news for Peloton, as it means people will stick around and keep paying for their membership. However, the risk that Peloton faces, especially as it increases its subscription price, is that churn rates will start to increase.

“Our users are highly engaged and our subscriber abandonment rate is below 1%, which is the best I have ever seen,” McCarthy said in his letter. “Today’s challenge and opportunity is to sustain and prolong this success.”

‘Rotation is hard work’

Most disappointing for investors is perhaps Peloton’s dismal outlook for the current quarter, which ends June 30 and marks the end of Peloton’s fiscal year.

McCarthy noted in his letter to shareholders “revolving is hard work.” When he first arrived in Peloton, the company’s supply chain was much weaker than he had anticipated, McCarthy told analysts on a post-earnings conference call.

However, McCarthy said in the letter that the business is working as quickly as possible to correct any wrongdoing, including determining the right level of production. He noted that Peloton’s free cash flow should be “meaningfully better” in the fourth fiscal quarter than it was in the third quarter.

Peloton is calling for Q4 revenue of between $675 million and $700 million. Analysts were looking for $821.7 million, according to Refinitiv estimates.

The company expects total connected fitness subscribers to reach 2.98 million, up just 1% from the third quarter.

Peloton said it has noticed lower demand since February, which has been partially offset by a rapid increase in sales since it recently slashed prices on its Bike, Bike+ and Tread machines.

Meanwhile, the soft subscription forecast takes into account a “modest negative impact” from a subscription price increase expected to take effect next month, it said.

Peloton notes that it has seen a “small increase” so far in subscription cancellations since announcing the price increase in mid-April, but it expects the impact to ease into the financial year. 2023.

In the coming months, McCarthy said Peloton will look to raise awareness of its digital app, allowing people to pay to access the company’s workout content without owning a Bike or Vehicle. bicycle.

“We are still primarily known as a stationary bike company. This app has never been the focus of our marketing campaigns or growth strategy,” he said in the letter. “Digital apps need to be the tip of the spear.”

He also said Peloton has plans to expand a recent experiment in which customers could pay a combined fixed rate for one of the company’s stationary bikes and access to its fitness membership. It allows people to return Bicycles when they have chosen to cancel.

The CEO also emphasized that Peloton must expand into more international markets in order to one day reach its goal of 100 million members.

Shares of Peloton are down more than 60% this year, not counting Tuesday’s loss. The stock closed in trading Monday at $14.13 a share, well below its IPO price of $29.

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