Peloton CEO Says ‘Epic Comeback’ Underway as Losses Shrink, Revenue Beats

An earlier version of this report incorrectly stated consensus expectations for Peloton loss.

Peloton Interactive Inc. reported a $335.4 million loss Wednesday for its latest quarter, a large sum but one that indicated continued progress from the connected fitness company’s cash spikes.

The company’s second quarter fiscal net loss of 98 per share on a GAAP basis was better than the loss of $439.4 million for the same period a year ago. Analysts tracked by FactSet were expecting GAAP losses of 66 cents a share.

Analysts are expecting continued losses but even more improvements from here, forecasting a $167 million loss for Peloton PTON,
in the March quarter.

Based on adjusted earnings before interest, taxes, depreciation and amortization, Peloton lost $122 million, compared to $267 million a year earlier. The FactSet consensus was $108 million.

“If you were wondering whether or not Peloton can make an epic comeback, this quarter’s results show that the changes we’re making are working,” Chief Executive Officer Barry McCarthy said in a letter to shareholders.

It pointed out that Peloton had negative free cash flow of $94 million, up from $747 million nine months earlier. Free cash flow would have been slightly positive were it not for “the cost of paying suppliers to pay off obligations for parts we don’t need,” she added.

The FactSet consensus was $149 million in negative free cash flow.

Shares were up more than 5% in pre-market trading on Wednesday.

While Peloton’s revenue is still down, the company has seen a considerable beat from analyst expectations. Revenue for the December quarter fell to $793 million from $1.13 billion a year prior, while analysts calculated $710 million.

“Despite strong seasonal hardware sales, for the third consecutive quarter, we generated more revenue from subscriptions than from hardware sales. This trend increases gross margin because subscription gross margins significantly exceed hardware gross margins,” she wrote.

A continuation of this trend would signal a “structural shift” toward gross margin progress, according to McCarthy.

On the product side, new strategic positioning and distribution initiatives “have been a major contributor to the turnaround of our business,” he noted.

The company had 6.7 million members in the recent quarter, along with 3.033 million ending connected fitness memberships. Peloton had 2.973 million fitness-connected subscribers in the September quarter. The FactSet consensus for the most recent period was 3.003 million.

For the fiscal third quarter, Peloton executives expect total revenue of $690 million to $715 million, while analysts were looking for $690 million. Management also expects a loss based on Adjusted Ebitda to be between $35 million and $50 million, while the FactSet consensus projected $44 million.

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