John Foley, co-founder and chief executive officer of Peloton Interactive Inc., stands for a photograph during the company’s initial public offering (IPO) before Nasdaq MarketSite in New York, US , on Thursday, September 26, 2019.
Michael Nagle | Bloomberg | beautiful pictures
Peloton said on Thursday that its fiscal second-quarter revenue will fall within its previous forecast range, as it takes actions to cut costs and improve profits.
However, the company added fewer subscribers in the most recent period, which ended on December 31, than expected.
In a press release pre-announcing its financial results, Peloton said it expected to end the quarter with 2.77 million connected fitness subscribers, compared with a forecast of 2.8 million to 2.85 million. Connected fitness subscribers are Peloton product owners and also pay a monthly fee to access the company’s digital workout content.
The average monthly net time in the expected quarter is 0.79%. This is lower than the 0.82% it reported in the first quarter and slightly higher than the 0.76% it saw in the period a year ago. The lower the churn rate, the less revenue Peloton gets with its user base.
It said it hit second-quarter total revenue of $1.14 billion, falling within the $1.1 billion to $1.2 billion guide it offered earlier.
And Peloton said adjusted losses – before interest, taxes, depreciation and amortization – would be in the $270 million to $260 million range, compared with previous guidance of a loss of $350 million to $325 million .
The company’s announcement on Thursday night followed a CNBC reports that the connected fitness equipment maker is suspending production of its products.
Shares of Peloton were up 2.5% in after-hours trading, after ending the day down 23.9%, at $24.22. About $2.5 billion removed from Peloton’s market capitalization on Thursday, when the stock fell below its $29 IPO price.
“As we discussed last quarter, we are taking significant corrective actions to improve our profit outlook and optimize our costs across the company,” said CEO John Foley said in a statement. “This includes improving gross margins, moving to a more variable cost structure, and identifying our operating cost reductions as we build a more focused Peloton going forward.”
Foley added that Peloton will have more to share when the company reports its fiscal second-quarter earnings on Feb.
On Tuesday, CNBC reported that Peloton is currently working with consulting firm McKinsey & Co. to look for cost-cutting opportunities, which may include layoffs and store closures.
At the end of this month, it will also start pay shipping and setup fees for its Bike and Tread products, partly due to historical inflation. The price of the Bike will be from 1,495 USD to 1,745 USD. Its less expensive treadmill will increase to $2,845 from $2,495. Bike+ will still be $2,495, according to Peloton’s website.
Baird analyst Jonathan Komp said in a note to clients that after pursuing growth for many years, Peloton has developed “a bloated corporate cost waistline.” He estimates that Peloton has added an additional $500 million to $600 million in annual spending on stores and employees that could be targeted and cut off business.
“We suspect that there are significant opportunities to reassess the workforce … amid expectations of post-Covid, more moderate short-term consumer demand,” Komp said.
Baird believes that the right cost-cutting measures could help the company become profitable sooner than expected.
Peloton said it doesn’t expect to be profitable — before interest, taxes, amortization and amortization — until fiscal year 2023.
Find the full press release from Peloton here.
