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Peloton (PTON) Q2 2023 Results

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Brody Longo trains on his Peloton exercise bike on April 16, 2021 in Brick, New Jersey.

Michel Loccisano | Getty Images

Platoon said Wednesday its net loss was down year-over-year and for the third straight quarter, subscription revenue exceeded sales of the company’s connected fitness products.

CEO Barry McCarthy called the results a possible “turning point” for the company, which has spent much of the past year executing an aggressive turnaround strategy.

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The fitness equipment company’s second fiscal quarter revenue beat Wall Street expectations, but the company posted bigger-than-expected losses per share. Peloton shares jumped about 7% in premarket trading.

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Here’s how Peloton fared in the three months ending Dec. 31 compared to what Wall Street expected, based on a Refinitiv analyst survey:

  • Loss per share: 98 cents vs. 64 cents expected
  • Revenue: $792.7 million vs. $710 million forecast

The company’s reported net loss for the three-month period ended Dec. 31 was $335.4 million, or 98 cents per share, compared with a loss of $439.4 million, or 1. $39 per share, a year earlier. Although this is the eighth consecutive quarter that the exercise company has posted losses, it is the smallest loss Peloton has recorded since its fourth quarter of fiscal 2021.

Revenue fell 30% from the prior year period, but topped the company’s forecast range of $700 million to $725 million. Sales of connected fitness products, which are typically strong during Peloton’s holiday quarter, fell 52% year over year, while subscription revenue jumped 22%.

“It’s the time of year where, if we’re selling a lot of hardware, you expect there to be a lot of hardware-related revenue, and you expect that revenue to maybe exceed the ‘subscription,’ McCarthy said. told CNBC. “It is not. That is why in the letter [to investors]I call it, because it can be a turning point.”

In his letter to investors, McCarthy said he expects the trend to continue.

The company ended the quarter with 6.7 million total members and 3.03 million connected fitness subscriptions, representing a 10% increase over the prior year period. The company had 852,000 subscribers to its app, down 1% from the previous year. Its goal is to get 1 million people to sign up for trials of its app over the next year.

Peloton is losing money on bikes, treads and other machinery, but its subscription business has once again kept its overall margins above water. Gross margins for its connected fitness products were negative 11.2%, but gross margins for subscription sales were 67.6%. Total gross margin was 29.7%, compared to 24.8% a year ago. However, it was down from the previous quarter, partly due to increased promotions during the holiday quarter.

Peloton expects revenues to be lower but margins higher next quarter. The company forecasts sales between $690 million and $715 million and a total gross margin of approximately 39%. Wall Street analysts pegged their revenue estimate for the quarter at $692.1 million.

The company also expects the number of Connected Fitness subscribers to be between 3.08 million and 3.09 million.

Next phase of recovery

Peloton, which boomed in the early days of the pandemic, has been in the midst of a broad turnaround strategy under McCarthy, who took over the company a year ago.

Shares of the company are up about 62% so far this year, closing at $12.93 on Tuesday, giving it a market value of about $4.4 billion. The shares are a long way off their 52-week high of $40.35, which they hit around the time McCarthy became CEO.

“The viability of the business was very uncertain when I came in,” said McCarthy, a former Spotify and netflix executive. “It probably wouldn’t be an exaggeration to say that some people didn’t expect us to survive that long.”

Since taking office, McCarthy has more than halved Peloton’s workforce, expanded its bike rental program nationwide, started selling certified used bikes, launched a rowing machine and is associated with Amazon and by dick Sporting goods to sell his bikes and treads.

McCarthy’s top priority was to manage cash flow and get the company out of the red, a goal he said the company nearly achieved. Free cash flow was negative $94.4 million, compared to $246.3 million in the prior quarter and $546.7 million in the year-ago period.

McCarthy said he’s ready to move from trying to keep the business alive to growing it, he told CNBC.

“Now that we’ve resolved the viability issues, let’s get back to thinking about growth and the future of the business, as a closing point,” McCarthy said.

“So there are a bunch of initiatives that we announced that position us for continued growth,” he added. “And the question we have to answer for investors now that we’re not talking about viability is how fast, how profitable, where does it come from, and over time we’ll start to answer to some of these questions.

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