Peloton Stock Sinks to Record Lows After Reporting Massive Loss
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Peloton stock (NYSE: PTON) stock crashed over 22% yesterday and fell to an all-time low of $5.05. While the stock managed to close at $5.41 it brings little succour to investors as it is down 33% for the year.
The stock crashed in 2021 and 2022 as well and now trades well below its 2019 IPO price of $29. The drawdown from its all-time peaks is even more sharp and while many former stay-at-home winners are fighting for relevance and their stock prices are a fraction of their all-time highs, PTON is arguably among the worst affected.
Peloton missed fiscal Q4 earnings estimates
Yesterday, Peloton released earnings for its fiscal fourth quarter of 2023. It generated revenues of $642.1 million in the quarter which was 5% lower YoY but slightly ahead of the $639.9 million that analysts expected.
During the quarter, it generated revenues of $220.4 million from sales of equipment while the remaining $421.7 million came from subscriptions. Over the last few quarters, Peloton’s subscription revenues have been strong and they have not only raced ahead of the product sales but in the fiscal fourth quarter they were almost twice of product sales.
Meanwhile, even as Peloton’s revenues were slightly ahead of estimates, its per-share loss of 68 cents was well ahead of the 38 cents that analysts expected.
To be sure, the fiscal fourth quarter is seasonally weak for not only Peloton but the overall fitness industry and the company’s CEO Barry McCarthy had forewarned during the previous earnings call that the quarter would be quite challenging, the performance was even worse than what markets expected.
McCarthy began the shareholder letter by stressing “Peloton’s FYQ4 performance is a reminder we operate a seasonal business.”
PTON’s connected subscriber count fell during the quarter
Peloton ended the quarter with 3.08 million subscribers and while it was 4% higher YoY – the number fell 29,000 from the previous quarter which McCarthy blamed on “seasonal slowdown in hardware sales and higher than anticipated CF (connected fitness) subscription churn.”
He added, “The slowdown exceeded our expectations through May and through the first three weeks of June as consumer spending shifted toward travel and experiences. Then eight weeks ago the trend reversed itself, and we began to see a reacceleration in hardware sales.”
McCarthy also blamed the seat recall that it announced in May for the growth slowdown and added that so far, the company has received 750,000 seat replacement requests which is higher than what it had expected.
He added, “The cost of this recall substantially exceeded our initial expectations, leading to an additional accrual of $40 million this quarter for actual costs incurred as well as anticipated future recall-related expenses.”
The company estimates that between 15,000-20,000 subscribers paused their subscriptions pending the seat replacement.
Peloton posted positive free cash flows
During the quarter, Peloton posted positive free cash flows excluding the DISH legal settlement and while the number was a paltry $1 million it is only the second time that the company posted positive free cash flows.
McCarthy meanwhile said that the company might not post positive free cash flows in the next two quarters but added that it would reach the goal in the back half of the year.
McCarthy on PTON stock price
During the earnings call, McCarthy said “there’s this enormous disconnect between the stock price and the energy in the building around all of the partnerships and co-development things that are cooking.”
Notably, Peloton has partnered with several companies that would help it increase its sales. Among others, it has now started selling its equipment through third parties like Amazon and Dick’s Sporting Goods after previously selling only through its own channels. In July, it also partnered with Liverpool FC and earlier this week it announced yet another partnership with the University of Michigan.
During the earnings call he said that the company would announce more such global partnerships in the coming days while adding that over the last decade, Peloton has been the “Henry Ford of stationary bikes.”
McCarthy stressed, “I don’t mean to sound like one of those CEOs who’s completely disconnected from the stock price, because it’s not lost on me.” He added, “But I have never been more optimistic, more excited about the future of the business.”
He also said that there could be significant upside to the company’s second-half financial performance due to the various initiatives that it is taking.
Analysts Don’t Buy the Optimism towards Peloton stock
Wall Street analysts meanwhile don’t share McCarthy’s optimism towards Peloton stock and after the earnings Bank of America analyst Justin Post downgraded the stock from a buy to hold while cutting his target price by half to $6.50 and said that it sees “limited visibility on growth initiatives.”
Post added, “We downgrade to Neutral from Buy and lower our PO to $6.50, based on 3x 2024E (4.5x prior) subscriber gross profit, a discount to Internet subscription comps reflecting hardware costs and a lower operating margin outlook, less net cash.”
Needham analyst Bernie McTernan also downgraded the stock from a buy to hold as Wall Street continues to get disenchanted with the company’s financial performance though.
Meanwhile, after the slide yesterday, PTON stock is up in early US price action as Nvidia’s stellar fiscal Q2 earnings have lifted market sentiments and sparked a broader market rally.
