Peloton Reports $1.2B Loss in Q4, Looks to 2023 for Turnaround
PTON shares are down as a result of the loss, but CEO Barry McCarthy remains hopeful and warns of “naysayers”
Peloton is reporting an operating loss of $1.20 billion in Q4, with restructuring charges accounting for $415 million of the loss, according to the connected fitness company. PTON shares plunged 20% on Thursday as a result of the financial results.
The disappointing financial news comes just one day after Peloton announced that its Bike, Tread, Guide, and accessories would be available for sale on Amazon.
In a letter to shareholders, Peloton CEO Barry McCarthy writes that the loss reflects “significant progress” made this quarter as Peloton continues to re-architect the connected fitness business.
McCarthy warns that “naysayers” will look at the connected fitness company’s Q4 financial results and see “a melting pot of declining revenue, negative gross margin, and deeper operating losses. They will say these threaten the viability of the business,” he states.
McCarthy, on the other hand, remains optimistic, stating that he sees significant progress in Peloton’s comeback story and notes the connected fitness brand’s long-term resilience. McCarthy cites new executive leadership, renegotiated supply contracts, and reduced cash outflow in his prepared statement, but admits that there is still work to be done. “We are on a journey to reach sustained positive free cash flow. In the six months leading up to Q4’22, we averaged negative free cash flow of approximately $650 million per quarter. We reduced that outflow to $412 million in Q4. Our goal is to reach breakeven cash flow on a quarterly basis in the second half of FY23,” he writes.
In order to lure more value-minded consumers, McCarthy says Peloton will continue to make its pricing attractive for its first generation Bike, certified pre-owned original Bike, Peloton’s Fitness-as-a-Service (FAAS) rental program, as well as its digital app subscription. A limited 10-day test of Peloton certified pre-owned bike sales in the United States and Germany resulted in a consumer response that, according to McCarthy, outperformed Peloton’s expectations, and the connected fitness brand plans to “lean into” these business models.
“We remain engaged in productive conversations with other prospective retail partners and are hopeful we’ll be able to announce additional partnerships soon,” McCarthy writes, touching on Peloton selling on Amazon.
“We expect the market for connected fitness to remain challenging for the foreseeable future in FY23,” McCarthy notes, predicting that, in time, Q4 “…will have been the high water mark for write-offs and restructuring charges related to inventory and supply chain issues and the beginning of the comeback story for Peloton.”
As he closes his letter, Peloton’s CEO shares a story about a challenging experience while working on a cargo ship in high school, comparing it to the connected fitness company. “The ship was healing sharply to starboard and the steel hull was shuddering. The captain was trying to turn the ship around, but a ship that big, going that fast, takes miles and miles to change direction…Peloton is like that cargo ship. We’ve sounded the alarm for general quarters. Everyone’s at their station. We continue to add new inputs to evolve our go to market strategy to restore growth. When will the ship respond is the question. Our goal is FY23,” McCarthy writes.
