Peloton Interactive cut the price of its original stationary bike again and signaled that slower growth is on the horizon after posting a hefty net loss in the fourth quarter of its fiscal year. The company reported a net loss of $313.2 million for the quarter ended June 30, against a profit of $89.1 million the year before, with its bottom line dragged down in part by costs associated with the recall in May of its Tread and Tread+ treadmills. The loss per share amounted to $1.05 dollars compared to earnings of $0.27 a share the year earlier, worse than an analysts’ consensus for a loss of $0.44 per share.
Revenues increased in the quarter by 54 percent to $936.9 million, slightly above an analysts’ consensus of about $929 million. The gross margin of 27.1 percent was down sharply from 47.6 percent a year earlier and below expectations due to pressure on margins in the connected fitness business, where initial product returns were higher than anticipated. The adjusted Ebitda loss for the quarter amounted to $45.1 million.
Quarterly sales and marketing expenses jumped by 172.3 percent to $229.3 million, reflecting the resumption of media spending as order-to-delivery times normalized after a pause in advertising at the start of the Covid-19 pandemic last year. R&D expenses soared by 231.0 percent year-on-year, as the company invested in developing new software features and hardware.
Including the contribution from the newly acquired Precor, Peloton’s connected fitness business posted revenues for the quarter of $655.3 million, an increase of 35 percent, as sales growth was held back by the suspension starting in May of treadmill sales. The segment’s gross margin tumbled to 11.6 percent in the quarter from 45.3 percent a year ago, hit by recall-related costs, the impact of a September 2020 price cut on the Peloton Bike and increased supply chain and logistics expenses.
On Aug. 30, Peloton will begin selling a new version of the Tread, equipped with new safety features, in the U.S. and resume sales of the treadmill in the U.K. and Canada after its voluntary recall over safety concerns in May. The treadmill will also be available in Germany in the autumn.
The company revealed that it is now cutting the price of its Peloton Bike again, to $1,495 from $1,895 previously, as part of what it says is a drive to make its products more accessible. The Peloton Bike originally sold for $2,245 before being reduced last September with the release of the pricier Bike+. Peloton’s Bike+ will continue to sell for $2,495.
Peloton’s subscription business remained buoyant, with revenues rocketing by 132 percent to $281.6 million and the gross margin widening to 63.3 percent from 56.8 percent. The company added 250,000 net connected fitness subscriptions in the quarter, bringing the fitness membership base to 2.33 million customers at the end of June, up by 114 percent on the year earlier. Monthly workouts per subscriber declined to 19.9 in the quarter from 24.7 percent the previous year as the company pointed to a return of more normal seasonal trends.
For the full financial year, the company’s net loss widened to $189.0 million from $71.6 million in the prior year, although adjusted Ebitda grew to $253.7 million from $117.7 million. The gross margin fell to 36.1 percent from 45.8 percent. Sales jumped by 120 percent to $4,021.8 million and were 340 percent higher than in fiscal year 2019, amid a boom in home fitness sparked by the Covid-19 pandemic.
For the first quarter ending Sept. 30, Peloton forecasts revenues of $800 million, up by just 6 percent on the previous year, but representing an annual average growth rate of 87 percent versus the same quarter of 2019. That forecasts assumes a “very small” contribution from the upcoming launch of the new Tread in the U.S. and the resumption of its sales to Canada and the U.K. given the lag between orders and deliveries.
For the first quarter, the company is also forecasting a gross margin of 33 percent and an adjusted Ebitda loss of $285 million. Peloton expects to end the quarter with 2.47 million connected fitness subscriptions, up 85 percent on the year and implying 140,000 net adds.
Peloton also provided its outlook for the fiscal year 2022, pointing to an expected slowdown in growth. Revenues are forecast at $5.4 billion. The company anticipates a gross margin of around 34 percent and an adjusted Ebitda loss of $325 million, with the adjusted Ebitda figure turning positive in the second half. Peloton also expects to be profitable at the adjusted Ebitda level in the fiscal year 2023.
“In the near term, our profitability will be impacted by the price decrease in our original Bike, significant increases in commodity costs and freight rate increases, a sales mix shift to Tread, investments in marketing to broaden our appeal, accelerated investments in new products and features, investments to scale our member support and logistics operations, and significant investments in systems to support our growth,” Peloton’s management said in its letter to shareholders about the results.
