Peloton's stock sinks as earnings outlook fails to impress

By Emily Bary

Company was 'less successful at engaging and retaining free users and converting them to paying memberships' with app relaunch

Peloton Interactive Inc. shares were sliding about 9% in Thursday's premarket action after the maker of connected exercise equipment showed financial progress in its latest quarter but delivered a downbeat outlook for the holiday period.

The company generated a fiscal first-quarter net loss of $159 million, or 44 cents a share, compared with $409 million, or $1.20 a share, in the year-earlier period. Analysts tracked by FactSet were modeling a 34-cent per-share loss.

Peloton (PTON) also reported $9.1 million in adjusted earnings before interest, taxes, depreciation and amortization (Ebitda), compared with a $33 million loss on the metric a year earlier. Analysts were projecting a $17 million loss.

Revenue fell to $596 million from $617 million, whereas analysts were modeling $589 million. The company logged $181 million in sales from its connected fitness products, down 12% from a year before, along with $415 million in subscription revenue, which was up 1%.

The company had 2.964 million connected fitness subscribers for the September quarter, compared with 3.078 million in the June quarter. Analysts had been looking for 2.987 million.

"As you know, we launched the standalone Peloton App with three tiers (Free, App One, App+) at the end of May," Chief Executive Barry McCarthy said in his letter to shareholders. "With limited marketing support, we saw more than one million consumers download the free version of our app."

McCarthy added that the "brand relaunch was successful in continuing to resonate with our core demographic, and it also attracted more male, GenZ, Black, and LatinX groups than before the relaunch."

However, there was also "bad news," in that Peloton was "less successful at engaging and retaining free users and converting them to paying memberships than we expected," prompting the company to shift its marketing spend to focus on the paid app and remove onboarding friction.

"This will be a long term work in process," McCarthy continued.

For the December quarter, Peloton expects revenue of $715 million to $750 million, along with a loss of $70 million to $90 million on the basis of adjusted Ebitda. The FactSet consensus was for $767 million on the top line along with a $49 million adjusted Ebitda loss.

-Emily Bary

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11-02-23 0725ET

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