Peloton's stock falls as earnings outlook implies more challenges to recovery

By Emily Bary

CEO says customer-service experience has 'tarnished our brand' and is in the middle of a revamp

Peloton Interactive Inc. said some new initiatives are bearing fruit, but the company's outlook implies continued challenges ahead for the one-time pandemic darling.

For the March quarter, Peloton (PTON) anticipates $700 million to $725 million in revenue, below the FactSet consensus view, which was for $749 million. The company also expects a $20 million to $30 million loss on the basis of adjusted earnings before interest, taxes, depreciation and amortization, while analysts had been projecting a $2 million loss.

For the full fiscal year, Peloton expects $2.675 billion to $2.750 billion in revenue along with a $25 million to $75 million adjusted Ebitda loss. The FactSet consensus called for $2.739 billion in revenue and a $40 million adjusted Ebitda loss.

"Our guidance for the remainder of [the fiscal year] represents our current best thinking about the future performance for the business, but I'll be disappointed if we can't figure out how to improve our performance during the quarter, like we did in Q2," Chief Executive Barry McCarthy said in a shareholder letter.

Shares of Peloton were off about 8% in Thursday's premarket trading.

Peloton saw falling sales in the holiday quarter, though that revenue came in ahead of expectations. The company has been trying to reignite momentum in the postpandemic era, and McCarthy said several of its newer efforts helped the business in the latest quarter.

For example, Peloton "saw exceptionally strong sales growth" from third-party retailers including Dick's Sporting Goods Inc. (DKS) and Amazon.com Inc. (AMZN) And Peloton's rental program for its Bike product "is attracting a more diverse, more female, and younger customer than it was six months ago."

Other initiatives didn't pan out so well, including a co-branded bike with the University of Michigan.

"Notwithstanding the football team's success winning the national championship, we sold substantially fewer bikes to alumni and boosters than we expected," McCarthy wrote. "What seemed like a good idea didn't deliver," so Peloton will end the initiative.

Plus, McCarthy was frank in discussing challenges with the company's customer-service team during the critical holiday selling period.

"The Member Support experience has tarnished our brand, and we simply must do better," he wrote. "The team is currently in the middle of a reboot."

The company notched a fiscal second-quarter net loss of $194.9 million, or 54 cents a share, whereas it posted a loss of $335.4 million, or 98 cents a share, in the year-prior period. Analysts were modeling a 54-cent per-share loss.

Peloton also reported a loss of $82 million on the basis of adjusted Ebitda, while it had recorded a $122 million loss on the metric a year earlier. The FactSet consensus was for a $78 million adjusted Ebitda loss.

Revenue fell to $744 million from $793 million but beat the FactSet consensus, which was for $733 million.

The company ended the quarter with 3.004 million paid connected fitness subscribers, compared with 2.964 million in the September quarter and 2.979 million in the prior year's December quarter. Analysts were modeling 2.989 million.

-Emily Bary

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02-01-24 0913ET

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