Peloton’s earnings are even worse than expected

Peloton’s earnings are even worse than expected

May 10, 2022 0 By Brian Heater

Market watchers were anticipating a rough quarter for Peloton, but not quite this bad. The beleaguered connected fitness company missed revenue estimates by $6 million, reporting $964.3 million – that’s down from $1.26 billion from this time last year. Losses for the quarter hit $757.1 million.

All eyes are on new CEO, Barry McCarthy, who took over for embattled cofounder, John Foley, back in February. “Turnarounds are hard work,” McCarthy wrote, opening the company’s shareholder letter on a suitably somber note. “It’s intellectually challenging, emotionally draining, physically exhausting, and all consuming. It’s a full contact sport.”

McCarthy acknowledged the company’s difficulties following pandemic-fueled explosive growth. It was an issue Foley had largely shaken off as overstated during his time at the company, but after Peloton ramped up production to meet new demand, gym re-openings have contributed to inventory stock piles. That includes, in part, returns that cannot be refurbished and resold.

“The balance sheet challenge has been managing inventory,” the CEO noted. “We have too much for the current run rate of the business, and that inventory has consumed an enormous amount of cash, more than we expected, which has caused us to rethink our capital structure (more on this in a moment). Fortunately, the obsolescence risk is negligible, and we believe the inventory will sell eventually, so this is primarily a cash flow timing issue, not a structural issue.”

The company is also facing down a price increase in its monthly subscription fee on June 1. The executive noted a “modest” churn rate this far, suggesting that if things remain at their current levels, the company will increase revenue by $14 million a month. It remains to be seen whether additional subscribers will jump ship when those price hikes go into effect.”We’re still a little bit uncertain when the dust settles what the churn will be,” McCarthy said on this morning’s earnings call.

He cites three primary goals for the first “1. stabilizing the cash flow 2. getting the right people in the right roles and 3. growing again.” He notes that the company has hired on former Grove Collaborative COO, Andy Rendich, to manage the company’s supply chain and help get inventory more inline with demand. The company, long known for its treadmills and bikes is set to shift its “focus from being hardware to software centric.”

Last week, the company was reported to be courting investors to take a 15 – 20% stake in a bid to bring in additional cash amid continued struggles to right the ship. Earlier reports suggested that it was exploring an outright sale to bidders, including Amazon. It’s since been suggested that the service is looking to increase revenue prior to executing an outright sale.

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