Peloton Tumbles After Predicting Another Sales Decline
(Bloomberg) -- Peloton Interactive Inc. shares tumbled as much as 25% after the company said it expects another sales decline in the current quarter, defying Wall Street predictions for a return to growth.
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The fitness technology company projected revenue of $700 million to $725 million during its fiscal third quarter, well short of the $755.6 million that analysts anticipated on average. That will mark a decline from about $749 million in the year-earlier period.
The outlook underscores Peloton’s struggle to recover from a post-pandemic slump. Though sales were better than expected during the holiday season, Chief Executive Officer Barry McCarthy is still seeking ways to get the company back on a path to growth. A high-profile push into the college market, which started with a partnership with the University of Michigan, failed to spur enough sales and will be wound down, he said.
“We continue to explore ways to ignite growth across multiple vectors,” McCarthy said in a letter to shareholders. “Several of these new initiatives have performed strongly. Some have not.”
The shares fell as low as $4.17 in New York, marking a record low since Peloton’s initial public offering in 2019. They had already dropped 8.7% in 2024 heading into its earnings report, adding to declines in 2021, 2022 and 2023. The stock is down more than 90% from its pandemic highs.
McCarthy acknowledged that the company’s biggest challenge remains growing “at scale” and said that revenue won’t start increasing again until the fourth quarter, which runs through June. Peloton — best known for its stationary bikes and online classes — has now been contending with declining revenue for two years, following a sales boom spurred by stay-at-home orders during the early days of Covid-19.
Peloton is expecting paid app subscriptions to fall about 13% in the current quarter to between 730,000 and 750,000. Revenue declined in the holiday period as well, though not as much as analysts feared. Peloton reported sales of $743.6 million, topping estimates of $733.7 million and coming in at the upper end of the company’s guidance.
Paid subscribers using Peloton’s fitness equipment came in at 3 million in the second quarter, beating the company’s expectations and representing 1% annual growth. But paid subscribers to Peloton’s app, which provides content via phones and tablets, declined 16% to 718,000.
Total members — including paid and unpaid users across Peloton’s platforms — came in at 6.4 million in the holiday quarter, down 4% from a year ago.
Achieving positive free cash flow is a key piece of McCarthy’s turnaround effort, which started when he took the helm in February 2022. It now appears that the company will miss that goal in fiscal 2024, though it may reach the threshold in the fourth quarter, he said.
Peloton announced the Michigan partnership in August, hoping to sell more equipment to colleges, alumni and boosters. But the effort was a flop, McCarthy said. “What seemed like a good idea didn’t deliver. So instead of launching additional co-branded bikes in school colors, we will end-of-life this hardware initiative,” he said.
The CEO also criticized his company’s customer service, saying that quality problems had “tarnished” the Peloton brand. That division is now in the middle of a “reboot” that will bring new management, systems and third-party vendors.
“I’m confident in the new leadership, and I’m confident that in the next few months our members will be receiving the level of service they deserve and expect and that we can be proud of,” he said.
McCarthy was more upbeat about other parts of the business. Sales through retailers like Dick’s Sporting Goods Inc. and Amazon.com Inc. were up 72% over the holidays, and the company’s bike rental program will see 100% growth in fiscal 2024, he said. McCarthy also said that the company’s high-end treadmill, which it’s bringing back nearly three years after a product recall, saw “significantly stronger” demand than anticipated.
In January, Peloton partnered with TikTok on a new content deal. “We are excited to see where this goes,” McCarthy said.
McCarthy has struck agreements with other partners such as Lululemon Athletica Inc. His turnaround effort also has included mass layoffs, outsourcing operations and reshuffling management.
(Updates trading starting in first paragraph.)
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