A Peloton exercise bike sold at the company’s showroom in Dedham, Massachusetts, USA on Wednesday, February 3, 2021.
Adam Grantsman | Bloomberg | Getty Images
Peloton On Tuesday, an unexpected quarterly loss and a sharp drop in sales were reported as inventory piled up in the warehouse and ran out of company cash.
Connected fitness equipment manufacturers also had a weak fourth-quarter sales outlook due to softening demand.The company Planned subscription price increase Some users may cancel their monthly membership.
Peloton’s excess inventory has forced the company to rethink its capital structure, CEO Barry McCarthy said in a letter to shareholders. Peloton ended the quarter “thinly capitalized” at $ 879 million with unlimited cash and cash equivalents, he said.
To address this, the company signed a binding commitment letter earlier this week. JP Morgan When Goldman Sachs According to the CEO, he will borrow $ 750 million in five-year debt. The two banks led Peloton’s IPO in 2019.
McCarthy said he was confident that the new capital injection from the term loan would allow the company to return to its net cash flow by 2023. “No matter what is happening in the economy. The end.”
McCarthy said in a letter that the focus is on stabilizing Peloton’s cash flow, putting the right people in the right roles and re-growing the business. Increasing subscription revenue is central to McCarthy’s strategy, which he gained from his previous experience. Spotify When Netflix.. He also said that Peloton will soon sell its products through third-party retailers. This is a step the company has never taken.
Based on an analyst survey by Refinitiv, here’s how Peloton behaved during the three months ending March 31 compared to what Wall Street expected.
- Loss per share: $ 2.27 against the expected 83 cents
- Revenue: Expected $ 964.3 million vs. $ 972.9 million
Peloton’s losses increased from a net loss of $ 8.6 million (3 cents per share) in the year-ago quarter to $ 757.1 million ($ 2.27 per share) in the third quarter. That’s more than the 83 cents loss per share that analysts were looking for.
Revenues decreased from $ 1.26 billion in the previous year to $ 964.3 million. This was lower than expected at $ 972.9 million, showing the company’s first year-over-year decline in sales since its launch in 2019.
According to Peloton, the decline is primarily due to a sharp decline in consumer demand. Covid-19 Pandemic‘talk. This was partially offset by the increase in treadmill sales, he said.
However, Peloton also noted that he is facing higher-than-expected profitability for Tread + machines. Recalled in May last yearThat totaled about $ 18 million, squeezing the company’s quarterly performance.
Over the most recent period, Peloton has generated $ 594 million in revenue from connected fitness products and $ 370 million in subscriptions.
The company closed the quarter with 2.96 million connected fitness subscribers, an equivalent of a net increase of 195,000. Connected Fitness subscribers are those who own the company’s equipment and pay for access to live and on-demand training classes, from cycling to yoga and meditation.
The average net monthly connected fitness churn that Peloton uses to measure retention of connected fitness subscribers improved to 0.75% over the period, compared to 0.79% in the second quarter.
Low churn is good news for Peloton as it means people are stuck and continue to pay for membership. However, the risk facing Peloton is that the churn rate begins to rise, especially when subscription prices rise.
“Our users are very enthusiastic and the subscriber churn rate is less than 1%, which is the highest I’ve seen,” McCarthy said in a letter. “Today’s challenge and opportunity is to maintain and expand this success.”
“Turn around is a daunting task.”
Perhaps the most disappointing for investors was Peloton’s gloomy outlook for the current quarter, which ended June 30 and marks the end of Peloton’s fiscal year.
“Turnaround is a daunting task,” McCarthy said in a letter to shareholders. When McCarthy first arrived at Peloton, the company’s supply chain was much weaker than expected, he told analysts in a post-earning conference call.
However, McCarthy said the business is working as quickly as possible to correct any mistakes, including sizing production levels to the right size. He said Peloton’s free cash flow should be “meaningfully better” in the fourth quarter compared to the third quarter.
Early in the deal on Tuesday, the company’s stock hit a record low, dropping more than 15% after lowering its market capitalization to less than $ 4 billion.
Peloton wants fourth-quarter revenue to be between $ 675 million and $ 700 million. Analysts were looking for $ 821.7 million, according to Refinitiv’s estimates.
The company expects a total of 2.98 million connected fitness subscribers. That’s just a 1% increase from the third quarter.
Demand has softened since February, according to Peloton, but has been partially offset by accelerated sales since the recent price cuts on bike, bike + and tread machines.
Meanwhile, Soft Subscriber Forecast said it took into account the “moderate negative impact” of the subscription price hike, which is scheduled to take effect next month.
Peloton said there has been a “slight increase” since the announcement of the price increase in mid-April until the subscription cancellation date, but expects the impact to subside in 2023.
Within the next few months, Peloton will be able to raise awareness of digital apps and pay for access to the company’s training content without having to own a bike or tread, McCarthy said. Told.
“We are still primarily known as an exercise bike company. This app was not the focus of our marketing campaigns and growth strategies,” he said. “Digital apps need to be the tip of a spear.”
He also said Peloton is planning to expand Recent tests that allow customers to pay a combined flat rate Access to one of the company’s exercise bikes and fitness membership. You can return your bike if you choose to cancel.
The CEO also emphasized that Peloton must expand into more international markets in order to reach its goal of 100 million members someday.
Peloton’s share price fell more than 60% this year, excluding pre-market losses on Tuesday. Shares closed at $ 14.13 per share on Monday, well below the IPO price of $ 29.
