Dive Brief:
- Peloton’s Q4 2022 earnings report on Thursday showed revenue dropped 28% year over year from $936.9 million to $678.7 million. Revenue from its connected fitness products fell 55% to $295.6 million, while subscription revenue grew 36% to $383.1 million. Net loss widened 297% to $1.2 billion.
- While connected fitness subscriptions - which represent members who both use a Peloton product and pay a monthly fee for content - were up 27% year over year, average net monthly connected fitness churn levels increased to 1.41% from 0.75% last quarter. Overall member count declined about 143,000 from Q3, but is up 15% year over year.
- The fitness company will not provide FY23 guidance due to “broader macroeconomic uncertainties and the pace and number of changes” it is making to the business. It will also no longer report quarterly engagement metrics.
Dive Insight:
Peloton CEO Barry McCarthy knows that the company’s Q4 earnings report might not look good.
“The naysayers will look at our Q4 financial performance 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,” McCarthy said in a statement. “But what I see is significant progress driving our comeback and Peloton’s long-term resilience. Important milestones reached include new executive leadership, renegotiated supply contracts, and significantly reduced cash outflow.”
The company plans to lean into its software in the coming months, projecting that more personalized content will help improve engagement and decrease churn rate. “The primary growth opportunity for us is in exploiting our singularly unique competitive advantage, which is our content,” McCarthy said on an earnings call Thursday.
Where McCarthy sees this moment in Peloton’s story as the process of turning a ship around, others see more issues ahead.
“Apart from encouraging CEO commentary and modest anticipated improvement in margins, there are very few things to cheer about in today’s press release,” said emailed comments from MKM Partners analysts led by Rohit Kulkarni. “[W]e view existential threats on Peloton as rising, particularly amidst an environment with reopening headwinds, rising interest rates, rising commodity prices (inflation), and possibly, softer consumer discretionary spend patterns as we head into 2H22.”
After decreasing its price on the original Bike in April, Peloton increased pricing on its more premium products, such as the Bike+ and Tread, earlier this month in an effort to appeal to a broader range of consumers.
“While such a move is necessary, we believe it will ultimately dampen demand still further as Peloton is already towards the top end of the market and with the impact of inflation many consumers – even those in higher income brackets – are far less in the mood to splash out on big ticket items,” said GlobalData Managing Director Neil Saunders in emailed comments.
The latest earnings report follows news yesterday that the retailer would start selling some products on Amazon, marking a departure from the company’s DTC strategy. The announcement Wednesday had heightened Peloton’s stock price, but its Q4 results on Thursday quickly brought it back down.
Peloton reportedly laid off about 800 employees earlier this month and announced plans to shutter many of its retail showrooms. When asked about its retail footprint in FY23 during its earnings call, McCarthy said “we don’t know how many stores we’re gonna end up with when the dust settles.”
In June, the retailer hired Liz Coddington as chief financial officer, bringing experience from Amazon Web Services. This followed the appointment of Barry McCarthy as CEO in February, ousting co-founder John Foley from the position.
These decisions mark an effort from Peloton to restructure the business. Not everyone agrees it is working though.
“All in all, we see Peloton as a company in distress that is scrambling around for solutions,” said Saunders.
