Peloton predicts strong third-quarter revenue as losses shrink

© Reuters

Author: Scott Kanowsky

Shares of Peloton Interactive (NASDAQ: ) Inc ( PTON ) gained 17% intraday on Wednesday after the company reported second-quarter results that beat the top line and issued a third-quarter revenue forecast that was much stronger than expected, as director CEO Barry McCarthy is targeting an “epic comeback” for the connected fitness company after a protracted era of restructuring. While investors cheered a less gloomy outlook and more upbeat commentary, others pointed to the potential for “eroding” subscriber quality as subscription revenue fell for the first time even as subscriber numbers rose.

In a statement, the company said it now expects total sales for the current quarter to be in the range of $690 million to $715 million. Bloomberg consensus estimates pegged the figure at $693.9 million.

However, Peloton indicated that it expects sales of the connected fitness units to fall after a spike in demand during the holiday season and a reduction in promotional activity.

“As in the last quarter, we believe that macroeconomic uncertainty is affecting consumer spending patterns and that near-term demand for Connected Fitness hardware is likely to remain challenging,” the group said.

Peloton has seen a surge in sales during the pandemic as stay-at-home shoppers look for exercise options. The strong performance pushed its market value to nearly $50 billion at one point, more than four times the value of its initial public offering in 2019.

But even as the company grew, so did costs. This trend began to affect the company’s results when most of the pandemic-era restrictions were lifted, leading to mounting losses and ultimately sharp job cuts.

McCarthy, a former finance chief at Netflix (NASDAQ: ) and Spotify (NYSE: ), was brought in to lead Peloton’s major turnaround. It later cut costs and formed partnerships with Amazon (NASDAQ: ) and Dick’s Sporting Goods (NYSE: ) .

In the second quarter, Peloton’s net loss narrowed to $335.4 million in the three months ended Dec. 31, down from $439.4 in the corresponding period in 2021. Negative operating cash flow also narrowed to $88.5 million, beating expectations of $90.3 million. Second-quarter revenue was $792.7 million, beating the consensus estimate of $710.45 million.

Citing earnings, McCarthy said questions about the company’s future viability had now been “put to bed”.

Meanwhile, analysts at Goldman Sachs (NYSE: ) said the results show Peloton’s revamped executive team is “setting clear goals for a return to growth through its digital app, international growth and subscription products.”

A BMO Capital analyst was not impressed with the results. He noted that while revenues were higher, gross profit was lacking as management flagged expanded equipment promotions to boost revenue. Furthermore, while the number of subscribers increased, subscription revenue “actually fell for the first time.” The analyst said this show “potentially erodes the quality of sales/subscriptions and continues to raise the question of whether PTON has overshadowed its core and committed potential user base.”

(Article originally published at 9:21 a.m. ET (2:21 p.m. GMT)).

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