Despite Losses, Some Say Peloton's 'Ship Is Turning'

Peloton's latest financial report contains plenty of numbers that will convince skeptics the ship is still sinking. Total revenue for the first quarter of its fiscal year fell to $626.5 million, down 23% from $805.2 million a year ago and down 9% from last quarter. And while the number of members is up compared to a year ago, with 6.7 million members versus 6.3 million, that number has declined 3% from the previous quarter.

On a year-over-year basis, Peloton's profit picture looks worse, too, with its net loss climbing to $408.5 million from $376 million in the same period last year.

It's also more subdued about the months ahead, predicting revenues of between $700 million and $725 million, much lower than the $875 million many expected.

But the report also points to “green shoots of growth beginning to emerge," writes Barry McCarthy, chief executive officer and president, in his letter to shareholders. 

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Those result from multiple initiatives at the New York-based company, "restructuring our business model from mostly fixed to mostly variable costs. Other big shifts include the evolution of our go-to-market strategy, including our third-party distribution deals with Amazon and Dick's Sporting Goods and Hilton, our sale of certified pre-owned bikes, and the rollout of our Fitness as a Service bike rental service."

Combined with its monthly subscriber churn of just 1.1%, the changes "demonstrate the turnaround in our business," McCarthy sats.

The results still disappointed many investors, and the company's stock price had fallen almost 20% at one point.

But some are encouraged. The results came in either near or a bit ahead of expectations, writes Jonathan R. Komp, an analyst who follows the company for Baird, with "significant progress on cost-cutting."

He continues to rate the company as likely to outperform its competitors. "While macro-related risks remain," including the cost of acquiring new customers and the potential for churn, "we think current levels provide a reasonable risk/reward as Peloton demonstrates financial benefits of the turnaround efforts."

The connected-fitness company is expected to reach break-even by the second half of the year.

Komp is also encouraged that member engagement is solid and up 20% over pre-COVID metrics.

"The transition period remains rocky," writes Chris Woronka, an analyst who follows Peloton for Deutsche Bank. "But momentum appears positive. The transition to a growth-oriented platform (versus the largely cost-cutting paradigm in recent quarters) is already well underway."

In a conference call following the results, McCarthy insisted the company is "done" with layoffs -- welcome news at a moment when many tech companies are writing pink slips. That announcement, notes Woronka, indicates "that relative stability is a necessary step on the path to rising brand standards."

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