Peloton’s struggle to regain momentum in a challenging landscape

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Peloton, the renowned connected fitness company, is facing an uphill battle as it strives to regain its pandemic-era glory. Despite a series of strategic moves, partnerships, and a relaunch of its Tread+ product, the company has reported a wider-than-expected quarterly loss, tepid holiday forecasts, and challenging times ahead for paid subscriptions.

In its first fiscal quarter, Peloton reported a loss per share of 44 cents, exceeding the 34 cents expected by Wall Street analysts. While revenue stood at $595.5 million, slightly surpassing the anticipated $591 million, the company’s financial performance remains precarious.

Peloton’s reported net loss for the quarter ending on September 30 amounted to $159.3 million, compared to a loss of $408.5 million during the same period the previous year. Sales also dipped from $616.5 million to $595.5 million year-over-year.

The company continues to rely heavily on its subscription services, which generated $415 million, overshadowing its hardware sales of $180.6 million.

Peloton’s outlook for the holiday season is cautious. Concerns about inflation-weary consumers cutting back on spending during this typically strong hardware sales season have led the company to forecast revenues between $715 million and $750 million, indicating an 8% drop compared to the previous year. This falls short of the $763.2 million predicted by analysts.

Paid connected fitness subscriptions are also expected to decline to between 2.97 million and 2.98 million, falling short of the 3.03 million expected by analysts. The company is forecasting a 21% year-over-year drop in paid app subscriptions and a 12% sequential churn.

Looking at the full year, Peloton anticipates a 6% drop in paid app subscriptions and a 2% decrease in revenue, projecting a range of $2.7 billion to $2.8 billion. These figures are slightly below the analysts’ expectations of $2.79 billion.

One bright spot for Peloton has been its rental service, referred to as “fitness as a service,” which ended the quarter with 54,000 subscribers in the U.S. and Canada. CEO Barry McCarthy sees it as a “big growth opportunity” and expects to end the year with 75,000 subscriptions. However, it takes about 18 to 20 months for the company to start making money on rentals, which is a factor in the cautious approach.

Peloton is also planning to relaunch its Tread+ at a new price of $5,995, despite concerns about the current economic environment. McCarthy believes that the strong emotional attachment of members to the Tread+ will likely result in success.

Despite these efforts, Peloton is grappling with higher-than-expected membership churn, ending the quarter with 2.96 million connected fitness subscriptions, below the 2.99 million expected by analysts. Churn came in at 1.5%, higher than both the company’s projections and analysts’ expectations.

Peloton launched a new tiered pricing strategy earlier this year, which included a free tier to attract more users to its platform. However, the conversion of free users to paid memberships has not met expectations.

In September, Peloton announced a partnership with Lululemon, aiming to share its fitness content with the apparel retailer’s exercise app, potentially reaching Lululemon’s 13 million members and boosting subscriptions. The partnership also includes revenue sharing, expected to add $10 million to the second-quarter sales.

Moreover, Peloton has partnered with the NBA and WNBA, with plans to develop league-themed fitness classes. The company has launched partnerships with the Liverpool Football Club, the University of Michigan, and the New York Road Runners, reflecting a growing interest from other brands to collaborate.

To enhance its hardware sales, Peloton has expanded to new markets outside the U.S., selling its Row machine in Canada and its Bike and Bike+ in Austria.

In a bid to return the company to growth and profitability, Peloton is grappling with unexpected challenges, including a costly recall of its Bike seat post that affected over 2 million bikes and contributed to the higher-than-expected churn. Despite these headwinds, Peloton remains determined to navigate the tough terrain and emerge successfully in the world of connected fitness.

(Source: Gabrielle Fonrouge | CNBC | Angela Palumbo | Barron’s | MarketWatch)

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