Peloton’s “Ship Is Turning” But Not From Its Product Revenues

Peloton Interactive (Nasdaq: PTON) reported its fiscal Q1 2023 financials highlighting a quarterly revenue of US$616.5 million, down from both Q4 2022’s US$678.7 million and Q1 2022’s US$805.2 million.

The topline figure also falls short of the previously announced guidance of US$625 – US$650 million.

“For the last nine months my goal has been to turn around Peloton and position it for sustained growth and scale. I thought it would take a year. We are beating that timeline,” CEO Barry McCarthy wrote in a letter to shareholders. “To revisit last quarter’s analogy, and to ensure absolute clarity, the ship is turning.”

READ: Peloton CEO Defends Disappointing Fiscal Q4 2022 Financials: “It’s Like A Cargo Ship… We’ve Sounded The Alarm”

For McCarthy, turnaround means a “stable underlying business with the green shoots of growth beginning to emerge. It means a financially sustainable business, which means breakeven or better free cash flow.”

Free cash flow for the quarter did improve to an outflow of US$246.3 million compared to the outflows of US$411.9 million last quarter and US$651.9 million last year.

“Breakeven FCF is an objective but it is not a guaranteed outcome,” McCarthy cautioned. “There are risks we will underachieve our forecast, particularly in this economic climate and given the outsized importance and uncertainty of the holiday selling season on overall performance.”

But breaking the revenue contributions down, subscriptions rose to US$412.3 million this quarter from US$383.1 million last quarter and US$304.1 million last year. However, products revenue slumped to US$204.2 million for the quarter, down from the previous quarter’s US$295.6 million and the previous year’s US$501.0 million.

The gross margin for the products comes at a negative 27.2%. Total gross margin, however, improved to 35.2% from last quarter’s negative 4.4% and last year’s 32.7%. The increase is mostly driven by high gross margin from the subscription revenues, landing at 66.2% for the quarter.

Operating losses widened this quarter to US$374 million from US$359.7 million last year; but it is an improvement from the US$1.20 billion loss notched last quarter. This also led to a net loss of US$408.5 million, up from US$1.24 billion last year but down from the US$376.0 million loss for the same comparable period last year.

On an adjusted basis–including the US$105.3 million stock-based compensation expense, adjusted EBITDA came in at a loss of US$33.4 million, an increase from US$288.7 million net loss last quarter and US$233.7 million net loss for the last year.

The firm ended with a cash balance of US$938.5 million, as well as inventory book value at US$993.2 million–pushing the current assets balance at US$2.29 billion. Meanwhile, current liabilities ended at US$927.2 million.

For Q2 2023, the firm is looking at a quarterly revenue of US$700 – US$725 million compared to Q2 2022’s US$1.13 billion. Meanwhile, adjusted EBITDA loss is expected to widen this quarter at US$100 – US$115 million vis-a-vis US$266.5 million loss for the comparable period last year.

Peloton Interactive last traded at US$9.22 on the Nasdaq.

Information for this briefing was found via the companies mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.

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