Shares of Peloton Interactive Inc. (PTON) were hit hard in Wednesday’s premarket trading session, tumbling over 18%. The popular maker of connected fitness equipment fell short of revenue expectations and announced higher-than-anticipated costs from a recent product recall.
Financial Performance
In the fiscal fourth quarter, Peloton recorded a net loss of $242 million, or 68 cents per share. While this may seem significant, it is actually an improvement compared to the year-ago quarter when the company reported a loss of $1.26 billion, or $3.72 per share. Analysts, however, were expecting a smaller loss of 40 cents per share.
The company also disclosed a $35 million loss on adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA). This figure is down from the $289 million loss reported in the same period last year. The consensus estimate by FactSet analysts predicted a $21 million loss on adjusted EBITDA.
Impact of Bike Recall
Peloton acknowledged that the cost of the bike recall exceeded initial expectations, resulting in approximately 15,000 to 20,000 affected members pausing their subscriptions while waiting for a replacement seat post. These unexpected expenses likely contributed to the disappointing financial results.
Decline in Revenue
Revenue for the quarter declined to $642 million from $679 million, slightly below analysts’ projections of $641 million. Looking ahead to the September quarter, Peloton expects revenue to range between $500 million and $600 million, significantly lower than the $647 million forecasted by analysts.
Future Outlook
Chief Executive Barry McCarthy addressed the company’s prospects in a shareholder letter, stating that Peloton does not anticipate remaining free cash flow positive in the next two quarters. This is mainly due to seasonal trends in hardware sales, timing of inventory payments, marketing expenses for growth initiatives, and the one-time cash outlay for seat posts. However, McCarthy expressed confidence in achieving positive cash flow once again in the second half of FY24.
Despite the current challenges, Peloton remains committed to its long-term growth strategy and preparation for the upcoming holiday season.
