Peloton (PTON) earnings Q1 2024

Peloton on Thursday reported a wider-than-expected quarterly loss, a tepid holiday forecast and “bad news” for paid subscriptions.

The connected fitness company has been working hard to boost revenue with a number of high-profile partnerships and the expected relaunch of its Tread+, but the success of its efforts remains uncertain as it continues to lose members and fails to make money off the ones it has.

Here’s how Peloton did in its first fiscal quarter compared with what Wall Street was anticipating, based on a survey of analysts by LSEG, formerly known as Refinitiv:

• Loss per share: 44 cents vs. 34 cents expected
• Revenue: $595.5 million vs. $591 million expected

The company’s reported net loss for the three-month period that ended Sept. 30 was $159.3 million, or 44 cents per share, compared with a loss of $408.5 million, or $1.20 per share, a year earlier.

Sales dropped to $595.5 million, down from $616.5 million a year earlier.

Once again, revenue from Peloton’s subscriptions — at $415 million — far outpaced sales of its hardware — $180.6 million — which has been an ongoing trend at the company.

For its holiday quarter, Peloton cited concerns that inflation-weary consumers will pull back on spending during the season, which is typically its strongest for hardware sales.

It’s expecting revenue of between $715 million and $750 million, an 8% drop at the midpoint compared with the year-ago period. That falls short of the $763.2 million analysts had projected for the company’s fiscal second quarter, according to LSEG.

It expects paid connected fitness subscriptions to be between 2.97 million and 2.98 million, which falls short of the 3.03 million that analysts had expected, according to StreetAccount. It’s forecasting a 21% year-over-year drop in paid app subscriptions and 12% sequential churn.

For the full year, Peloton expects paid app subscriptions to drop 6% and revenue to fall 2% to a range of $2.7 billion to $2.8 billion. Analysts were expecting full-year revenue to be in line with Peloton’s projections at $2.79 billion, according to LSEG.

Peloton has been working to launch a series of new strategies in its quest to reclaim its Covid pandemic-era heyday but so far, the results have been mixed.

One bright spot has been its rental service, also known as fitness as a service, which CEO Barry McCarthy called a “big growth opportunity” in a letter to shareholders. Peloton ended the quarter with 54,000 rental subscribers in the U.S. and Canada and expects to end the year with 75,000 subscriptions. During the quarter, rentals represented more than 33% of bike sales.

During a call with analysts, McCarthy said he’s actually been holding the program back from growing more because it still takes about 18 to 20 months for the company to start making money on rentals. Over the next year, Peloton is hoping to have a better understanding of the economics of the program and the working capital it needs to grow it, he said.

“Before we let it loose in the wild, we better know what we’re doing, if that makes sense,” said McCarthy.

“If I were to step out of the way, so to speak, it would already be a bigger business than I have allowed it to become.”

The company also has plans to relaunch its Tread+, which was recalled in 2021 after a child was killed and dozens of injuries were reported. Considering the new price tag of $5,995, McCarthy said sales could “fall flat” given the current economic environment but he thinks it could actually prove to be a boon for sales.

“Of all of the products that I’ve ever been exposed to with Peloton, the one single product that you couldn’t pry out of the dead hands of members is the Tread+,” said McCarthy. “They are absolutely over the top fanatically obsessed about the user experience on the Tread+. I mean, dramatically, exponentially more emotionally engaged with that product than anything we’ve ever produced and frankly, it’s that reaction that confirms my belief that we’re more likely than not to be successful.”

Despite its many efforts, the company is seeing higher-than-expected membership churn once again. It ended the quarter with 2.96 million connected fitness subscriptions, below the 2.99 million that analysts had expected, according to StreetAccount, and a drop off of about 30,000 memberships compared with the prior quarter. Churn came in at 1.5%, which was higher than the company’s projections and the 1.35% churn rate that analysts had expected.

Earlier this year, Peloton launched a new tiered pricing strategy for its app — a key part of its growth strategy — that included a free tier. The idea was users would fall in love with Peloton’s content and spring for a paid membership, which comes with a far wider variety of classes, but that bet is yet to materialize.

“With limited marketing support, we saw more than one million consumers download the free version of our App. Our 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. That’s the good news,” McCarthy said in a letter to shareholders.

“The bad news is we were less successful at engaging and retaining free users and converting them to paying memberships than we expected.”

In response, the company shifted its marketing spend to focus on the company’s paid offering, which drove a higher mix of premium-priced subscribers than it expected. Second, it worked to improve the user experience to make it easier to find classes.

It ended the quarter with 763,000 paying Peloton app subscribers, 65,000 fewer than the prior quarter. Churn for its paid app subscription came in at 6.3%, lower than what the company had expected. Analysts had expected 768,200 app subscribers, according to StreetAccount.

Engagement with Peloton’s content, measured by time spent on the platform, was up 6% during the quarter. Users are taking longer classes and more class types than they were a year ago, the company said.

In late September, Peloton announced a five-year partnership with former rival Lululemon that brought Peloton’s prized fitness content to the apparel retailer’s exercise app. The partnership marked the first time that Peloton was willing to share its content with another company as it looks to woo Lululemon’s 13 million members and convince them to sign up for its subscriptions. 

Content became available to Lululemon’s members on Wednesday, and the company expects its revenue-sharing agreement to add $10 million to fiscal second-quarter sales, finance chief Liz Coddington said on a call with analysts.

The company also announced a multiyear partnership with the NBA and WNBA, which agreed to name Peloton as an official fitness partner of the sports leagues. As part of the partnership, NBA League Pass – the league’s live game subscription service – will be available to stream across Peloton devices. The company also has plans to develop NBA- and WNBA-themed fitness classes. 

In addition to Lululemon, the NBA and the WNBA, Peloton has launched partnerships with the Liverpool Football Club, the University of Michigan and the New York Road Runners with more to come.

McCarthy said there wasn’t a brand in the world that “wouldn’t kill to partner with Peloton now.”

“People have been beating down our door to talk about different ways to work with us,” he said.

When it comes to hardware, Peloton is now selling its Row machine in Canada and its Bike and Bike+ in Austria, its fifth market outside of the U.S., as it looks to boost sales of its connected fitness products, which have been on the decline. 

All of the strategies are part of McCarthy’s goal to return the company to growth and boost membership so it can eventually find a path to profitability. During the previous quarter, Peloton saw higher-than-expected churn that the company suspects was related to the recall of its Bike seat post, along with seasonality. 

The post, which had a tendency to detach and break unexpectedly during use and left some riders injured, was recalled in May and impacted more than 2 million bikes. During the previous quarter, the recall cost the company $40 million, far more than it had expected.

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