Peloton's Turnaround Is Happening

Peloton Interactive Inc PTON shares soared 35% on Thursday as the exercise equipment company showed it finally restored its sales growth for the first time in nine quarters. While Peloton delivered a mixed full year outlook, its quarterly results were well ahead of Wall Street estimates. 

Fourth Quarter Highlights

For the quarter ended on June 30th, Peloton grew its revenue about 0.2% YoY to $643.6 million, surpassing LSEG’s estimate of $631 million. Although this is a slight increase of $1.5 million, Peloton managed to return to revenue growth during a typically slower quarter as summer is all about traveling and going out. Peloton was not able to achieve sales growth since 2021’s holiday quarter and this is typically its strongest season so the latest success is to be applauded. Although Peloton’s pricy connected fitness hardware continued to decline as it reported a sales drop of about 4%, subscription revenue increased 2.3%, with the segment’s gross margin also rising by 1 percentage point. To combat declining hardware sales, Peloton found a way to grow its subscription revenue through the secondary market, with revenue from this segment growing 16% YoY.

More importantly, Peloton significantly narrowed down its losses to $30.5 million, which is quite an improvement from the $241.1 million loss it reported during last year’s comparable quarter. Adjusted EBITDA amounted to $70 million which easily surpassed StreetAccount’s $53 million estimate. Unlike last year’s comparable quarter with negative $74 million in free cash flow and previous quarter with also a negative $8 million, this time round, Peloton generated $26 million in free cash flow. Peloton pulled it off by lowering its sales and marketing spending by $25.5 million or 19% YoY and it will continue to make such budget reductions through the current fiscal year. 

Guidance

For the current quarter, Peloton guided for sales between $560 million and $580 million, which is lower compared to LSEG’s estimate of $609 million. However, Peloton guided for stronger EBITDA compared to StreetAccount’s estimate of $45 million as its outlook is in the range from $50 million to $60 million.

As for the full year, Peloton guided for sales in the range between $2.4 billion and $2.5 billion, which is lower than LSEG’s estimate of $2.7 billion.

The connected bike and treat maker company is doing its homework. 

The connected fitness company has been working on improving its balance sheet by lowering its sales and marketing spending, shifting its growth focus towards profitability. The latest results show that Peloton is doing a good job at digging itself out of the red. The restructuring plan that Peloton announced earlier this year seems to be working. As part of its turnaround, Peloton is trimming 15% of its workforce to bring annualized cost savings of $200 million in by the end of fiscal 2025 and its financials are already benefiting from these cost-cutting measures. Going ahead, Peloton remains focused on improving the user experience, but the effects of subscriber growth are to be seen over the long haul and therefore, are not expected during the current fiscal year. 

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