After reporting solid Q1 results at or above expectations, Peloton Interactive has set its sights on revenue growth acceleration and substantial positive free cash flow in H2, bolstered by the anticipated relaunch of its Tread+ treadmill, continued expansion of its bike rental program and higher sales contribution from international markets. However, several factors, including the company’s ability to efficiently grow its paid app subscriber base, could prevent the company from reaching its annual performance objectives. The company’s current forecast of a full-year adjusted Ebitda loss of $25 to $75 million was higher than Wall Street’s expectation of a $25.3 million loss and sent Peloton shares down by nearly 8 percent in premarket trading today. Higher sales and marketing costs for the remainder of the FY will likely lead to lower adjusted Ebitda on a sequential basis.
In Q1, Peloton lowered its year-over-year net loss to $159.3 million from $408.5 million and increased its adjusted Ebitda to $9.1 million from a loss of $33.4 million. Gross margin improved to 47.9 percent from 35.2 percent despite a 3 percent revenue decline to $595.5 million and a 4 percent drop in members to 2.96 million. The number of paid Peloton app subscribers fell by 65,000 to 763,000 but exceeded internal forecasts as the company’s premium tier App+ subscription adds tracked ahead of expectations.
Clearly, the group sees its new partnerships and programs with the likes of the NBA/WNBA, Division I U.S. universities, Lululemon and Liverpool FC as positively impacting its longer-term trajectory. Also, bike rental subscriptions and international markets are seen as positive contributors. At Q1 end, Peloton had 54,000 paid bike rental subscribers in the US and Canada. The company, which recently expanded the program in Germany with plans to open in the UK, wants to finish FY24 with approximately 75,000 rental subscriptions and about 90 percent year-over-year revenue growth. The company has pegged annual international revenue growth at more than 20 percent this year.
One of Peloton’s biggest bets this year is on its ability to increase the number of app subscribers via a three-tiered program available to anyone at anytime, anywhere that was launched at the end of May. Since then, the company has seen more than one million downloads of the free version and high interest from men, Gen Z, Black and LatinX groups. However, Peloton has not been as successful in engaging and retaining free users and converting them to paying memberships, according to CEO and President Barry McCarthy.
In terms of personnel, the company has transferred responsibility and the title of Chief Product Officer to newcomer Nick Caldwell with the departure of co-founder Tom Cortese.
