Platoon posted a worse-than-expected Christmas quarter on Thursday after shoppers were unable to shell out for its new AI-powered product line and walked away from higher subscription prices, sending shares tumbling 26%.
The connected fitness company missed Wall Street estimates for revenue and results and missed its own internal sales targets in the three months ended Dec. 31, which are typically the strongest for Peloton's hardware revenue.
The company said it expects slow sales to continue in the current quarter. Peloton expects revenue between $605 million and $625 million, missing expectations of $638 million, according to LSEG.
The weak results, along with weak guidance, are the first clues investors have that Peloton's product overhaul may not be the sales driver the company hoped it would be.
The revamped assortment, which included AI-powered trail cameras, speakers, 360-degree rotating screens and hands-free control, was designed to increase sales and attract new customers. But Peloton's results show that demand has been slow.
“I will not be satisfied until this company returns to healthy, sustained revenue growth,” Chief Executive Peter Stern said on a call with analysts. He said the company has seen an improvement in that its revenue decline is becoming less pronounced, but acknowledged that is “not enough.”
While Peloton's earnings may be disappointing for investors, the company is still making progress in improving its profitability. During the Christmas quarter, the company generated $81 million in adjusted earnings before interest, taxes, depreciation and amortization, better than the $73 million analysts expected, according to StreetAccount.
After announcing plans to lay off 11% of its staff last week, the company expects to generate between $120 million and $135 million in adjusted EBITDA in the current quarter, better than the $119 million analysts were expecting, according to StreetAccount.
It raised its full-year adjusted EBITDA guidance to between $450 million and $500 million, up from a previous range of between $425 million and $475 million.
This is good news for investors because it shows that Peloton was able to innovate its product line without depleting profitability.
Also on Thursday, the company announced that Chief Financial Officer Liz Coddington will be leaving Peloton to “pursue an opportunity outside the industry.” She will stay on through March while the company searches for its next chief financial officer.
Here's how Peloton fared in its fiscal second quarter compared to what Wall Street anticipated, according to a survey of analysts by LSEG:
- Loss per share: 9 cents versus 6 cents expected
- Revenue: $657 million vs. $674 million expected
The company's net loss for the quarter was $38.8 million, or 9 cents per share, a significant improvement from the $92 million, or 24 cents per share, it lost in the same period a year earlier.
Sales fell to $656.5 million, down about 3% from $673.9 million a year earlier.
Since Peter Stern took over as CEO of Peloton, he has worked to generate new revenue streams and leverage the company's progress to improve its profitability.
The revamped product range was one of his first big moments as CEO and included new pricing for both subscriptions and hardware. Despite the higher prices, both hardware and subscription revenues were lower than expected, indicating that unit sales have been weak.
Hardware sales generated $244 million in revenue during the quarter, while subscriptions posted $413 million in sales, both below expectations of $253 million and $424 million, respectively, according to StreetAccount.
Part of the problem was that Peloton expected more current members to upgrade from their old hardware.
“We just overestimated the rate at which existing members would want to upgrade their current gear with new gear. The only historical data we had as a company on this was when we launched Bike Plus a few years ago, and that was a really fundamental reinvention of the entire bike frame,” Stern said. “And it turns out we didn't see the same rate of improvement among existing members.”
Looking ahead, investors want to see if Stern can return the company to growth now that expenses have stabilized and profitability is improving. In an economy where value is more important than ever, it has been difficult to convince buyers to spend thousands of dollars on exercise bikes and treadmills.
One flash could be the company's growing commercial business unit, which includes commercial versions of Bike+, Tread+ and Row+ that will be marketed in places that have small gyms, such as hotels, apartment buildings, corporate wellness centers and country clubs.
During the quarter, Peloton's commercial business unit revenue increased 10%.
