Further positive developments at Peloton Interactive, including a 64 percent reduction in the Q3 net loss and a 5 percent gain in connected fitness subscriptions, are dimmed by a $75 million settlement and patent license agreement with DISH Technologies that will negatively impact Q4 cash flow.
The connected fitness company will relaunch its brand and re-introduce its app, with a new tiered membership structure, later this month to “… drive top-of-the-funnel awareness (for Peloton) and become a meaningful contributor of revenue,” according to CEO & President Barry McCarthy.
In Q3, Peloton reported a net loss of $275.9 million against a loss of $757.1 million in the year-ago period on a 22 percent dip in total revenues to $748.9 million from $964.3 million. Adjusted Ebitda improved by 90 percent to a loss of $18.7 million against a loss of $194.0 million in Q3/22. Product sales slipped by 45 percent to $324.1 million, but subscription revenues increased by 15 percent to $424.7 million. Connected fitness subscriptions rose by 5 percent to more than 3.1 million, but the subscription gross margin dipped by 40 basis points to 67.8 percent. Overall gross margin jumped a whopping 1,700 b.p. to 36.1 percent from 19.1 percent.
The company, which ended the period with 47,000 subscribers for its bike rental program, introduced it in Canada last month. Now, Peloton is exploring whether to expand its PCR bike sale program, which moved 7,000 units during the period, to its treadmill and rower later this year. The company continues to experience strong growth in secondary market activations from consumers who purchase brand hardware from sources such as eBay. Secondary market-connected fitness subscriptions rose by 40 percent, or 33,500, in Q3.
Besides the tiered pricing structure to fuel revenue growth, part of the group’s motivation behind the new app is to cast a wider net for fitness enthusiasts beyond bike workout-only enthusiasts. Using strength training, yoga, meditation, and outdoor running as examples, McCarthy pointed out that Peloton user experiences have evolved considerably over the last decade.
From a subscriber perspective, Q4 has historically seen the base number decline. That trend is expected to continue in the current period despite the app’s relaunch. Going forward into FY24, Peloton will lean further into the hospitality channel, where it’s already expanded its partnership with Hilton properties, and in international markets where operating losses have been lowered, but sales growth and profitability must be expanded.
