Peloton Plummets 20% To New Record Low As Capital Dwindles, Guidance Disappoints

Just days after word broke that Peloton was shopping around to find a new minority investor (maybe a PE or pension fund, perhaps?) to help recapitalize the company as it scrambles to pivot and revive its business, the company reported an earnings report that was any but encouraging.

First of all, the company’s Q3 results were disappointing: its revenue of $964.3 million marked a -24% y/y drop, and also missed estimates of $971.6 million (although there was one important bright spot – connected fitness subscribers climbed to 2.96 million, a +42% y/y jump that beat estimates for just 2.9 million).

PTON reported another larger-than-expected loss, posting a $194 million adjusted Ebitda loss vs. a slight adjusted quarterly profit of $63.2 million y/y. Analysts had estimated a loss $132.1 million.

But it was the guidance that really made investors nervous, particularly the projected numbers for next quarter (numbers courtesy of BBG):

• Sees revenue $675 million to $700 million, estimate $820.9 million (Bloomberg Consensus)
• Sees adjusted Ebitda loss $115 million to $120 million, estimate loss $19.9 million
• Sees connected fitness subscribers 2.98 million, estimate 3 million
• 4Q outlook reflects softer demand vs. February forecast, partially offset by accelerated sales seen as a result of recent hardware price reductions
• CF subscriber forecast of about 2.98m incorporates a modest negative impact from subscription pricing increase starting June 1
• Seen small increase to cancellations due to the Connected Fitness subscription price increase announcement; expect impact to moderate through FY23
• Expects overall gross margin of about 31%; CF margin will be significantly impacted by recent pricing changes and continued headwinds in freight, storage, and logistics due to the reduction in our demand outlook
• Co. expect headwinds in freight to largely abate in FY23 and storage costs to come down as we move through FY23, resulting in positive CF margin profile next year
• Expects FCF to be meaningfully better in 4Q vs. 3Q

The company’s stock tumbled 20% in premarket trade as its Q4 revenue guidance disappointed, while the company also signed a binding commitment letter with JP Morgan and Goldman to borrow $750 million in 5-year term debt.

Also one twitter user pointed out the following detail from the company’s filing, and joked that that management sounded more than a little out-of-touch.

Peloton is beginning to sound like a Herbalife distributor pic.twitter.com/y3V1uK3Rqa

— Newsquawk (@Newsquawk) May 10, 2022