Dive Brief:
- In what was expected to be a challenging quarter, Peloton’s fourth quarter total revenue declined 5% year over year to $642.1 million, according to a Wednesday press release. The fitness company’s Q4 net loss improved from $1.25 billion the year before to $241.8 million.
- Peloton missed total gross margin expectations of 41%, instead bringing in 31.3% for the quarter. The company reported ending connected fitness subscriptions came in at 3.078 million. Meanwhile, Peloton CEO Barry McCarthy said in a letter to shareholders that the company achieved positive free cash flow in Q4 when excluding the Dish legal settlement.
- McCarthy noted that growth was impacted by a bike seat post recall in May. The company received approximately 750,000 requests for replacement seat posts, more than initially expected, and has seen higher costs related to the recall, causing an additional accrual of $40 million during the quarter. About an estimated 15,000 to 20,000 of Peloton’s impacted members decided to pause their subscriptions in Q4 pending a replaced seat post.
Dive Insight:
Peloton’s Q4 results come after McCarthy in May predicted that the quarter would “be among our most challenging from a growth perspective.”
“Peloton’s FYQ4 performance is a reminder we operate a seasonal business,” McCarthy said in the shareholder letter Wednesday. “Not since I stepped into the CEO role have we had as many new irons in the fire to drive both short- and long-term growth. It’s a big deal, and it serves to remind us that Peloton's transformation continues with urgency to pursue sustained, profitable growth.”
On Tuesday, Peloton announced that it entered into a partnership with the University of Michigan to designate Peloton as the official Connected Fitness Partner of University of Michigan Athletics, which includes adding co-branded Peloton Bikes to the football sidelines, per a company press release. The partnership is part of a larger initiative to work with academic institutions.
The fitness company last week unveiled a new B2B initiative, called Peloton for Business, per a release. The offering provides wellbeing solutions for enterprise clients in industries such as hospitality, healthcare and multi-family residential.
On a call with analysts Wednesday, McCarthy said that the company recently hired executive Greg Hybl to support the commercial side of its business. The new senior vice president and general manager of Peloton for Business started in August and brings over 13 years of experience from American Express, according to LinkedIn.
Peloton’s latest earnings results come after the company in May relaunched the brand, positioning itself as “more than a bike company.” The fitness company unveiled a new brand identity along with an expanded range of tiered content memberships, which included a free Peloton App membership with over 50 classes available at no cost.
“We really do believe that building a free tier base is important for the long term,” Peloton CFO Liz Coddington said on the call with analysts. “We're very focused on driving awareness ... but a lot of these people are new to Peloton and they haven't decided yet to upgrade.”
