- Beating its own expectations, fitness brand Peloton on Wednesday reported second-quarter revenue of $792.7 million, according to a company press release. This marked a 30% drop year over year, but a 29% increase on a quarterly basis. The company’s net loss narrowed to $335.4 million from $439.4 million a year ago.
- Revenue from content subscriptions was once again higher than revenue from its connected fitness products, such as its Bike or Tread. However, even subscription revenue declined, falling from $412.3 million in the previous quarter to $411.3 million despite an increase in connected fitness subscribers (customers with both Peloton hardware and a content subscription).
- In a letter to shareholders, CEO Barry McCarthy said the company had planned to sell its Ohio manufacturing facility and its Precor owner-operator supplier business, but neither effort came to fruition. The sale of the facility has been delayed by up to six months, and the company has pivoted to restructuring Precor to maximize growth after clearing prices were lower than Peloton thought it was worth.
For Peloton’s CEO, these quarterly results are the most positive yet during his tenure.
“This was by far our best quarterly performance in my twelve months with Peloton,” McCarthy said to shareholders. “Most of the executive team is also relatively new to Peloton and new to their teams. Given what we’ve already accomplished, imagine what’s possible once the team finds its groove.”
However, not all analysts see Peloton’s latest earnings as favorably.
“While Peloton continues to move gradually in the right direction, this is another set of weak numbers that throws a dark cloud around the business,” GlobalData Managing Director Neil Saunders said in emailed comments.
Although free cash flow has improved significantly year over year, missed margin estimates and a remaining net loss paint a less positive picture. Total gross margin increased year over year from 24.8% to 29.7%, but marked a decline from the previous quarter’s 35.2% and missed company expectations of about 36%.
“All of this is uncomfortable,” Saunders said. “We recognize the work management has done to stabilize things. However, the business model still has a lot to prove, and further time is [needed] to assess whether it is viable or on a path to further decline.”
The brand’s increased subscribers, but decreased subscription revenue demonstrates a “potentially eroding quality of sales/subs and continuing to raise the question as to whether [Peloton] has eclipsed its core-and-committed potential user base,” according to emailed comments from BMO Capital Markets’ Simeon Siegel. Siegel noted that this was the first time subscription revenue has declined.
The second-quarter results follow a year of company restructuring from McCarthy. Some of the company’s initiatives and cost-cutting measures have included several rounds of layoffs, increased pricing, wholesale deals with Amazon and Dick’s Sporting Goods, as well as some executive leadership exits.
And while its cost cuts may show the brand’s commitment to minimizing losses, Peloton’s proximity to becoming profitable might still be a far reach, according to Saunders.
“It is also fair to note that some of this quarter’s costs are exceptionals that relate to restructuring work,” Saunders said. “However, even when these are stripped out, Peloton would still be loss-making to a significant extent.”