Peloton Interactive Inc. has cut down its revenue projections by $1 billion along with lower profit margins and subscribers, reflecting its struggle to adjust to the post-pandemic economy.
Peloton, known for its remote classes and exercise bikes, is now looking for sales in the region of $4.4. billion to $4.8 billion for the fiscal year ending in June 2022. The Fitness company had predicted revenue of $5.4 billion less than three months ago. On a call with analysts, Peloton said that they had underestimated the impact after the reopening of the economy.
The bleak outlook sent stocks tumbling by 30% to $60.12. Even before the collapse, shares were down by 43% for 2021, as per Bloomberg news.
Peloton’s good performance was a pandemic outcome when customers looked to home exercise services during the lockdown. With people now going back to offices, schools, and regular gyms, the demand for Peloton’s gym products has come down. The rising cost of commodities along with supply chain bottlenecks has also impacted Peloton.
Breaktime
In a letter to its shareholders on Thursday, the management said, “We had anticipated 2022 fiscal to be challenging and are taking necessary steps to cut operating costs and re-examine the expense base“.
In a best-case scenario, Peloton expects to have 3.45 million fitness subscriptions by the end of the fiscal year. Previously, it forecasted 3.63 million. The gross profit margin will be 32% compared to the 34% predicted earlier. This will all add up to around a $475 million loss.
John Foley, Co-founder, and CEO said that the swift change and limited visibility into the future are not lost on the company. The traffic to Peloton store tapered more than what was anticipated, as per the executives of Peloton. However, the company saw a positive response to its price rejig and international launches, especially in Australia.
In August, the company cut its bike price by $400. That has also hurt its profitability as more than expected buyers preferred that product over others.
According to the letter, the second quarter saw a softer start than anticipated, leading the company to rework its projections. Peloton, however, added that “Commitment and confidence in our strategy remain unchanged”.
Apples Inc.’s ad-related changes in privacy norms also made it difficult for Peloton to target specific shoppers. The effort to control costs will not show in a couple of quarters. The company expects its profit before interest, depreciation, amortization, and tax only by fiscal 2023.
In the last quarter, revenue rose by 6% to $805.2, which was just above the forecast of $800 million but lower than $809 expected by analysts. Peloton posted a net loss of $1.25 per share.
A 94% increase in subscription revenue of $304.1 million contributed to this slim growth even as hardware sales were $501 million, down by 17% in the first quarter.
The second quarter expectation of the company is between $1.1 billion to $1.2 billion in revenue. This will miss the analysts’ estimate of $1.5 billion and 2.8 to 2.85 fitness subscriptions by the end of December.
As per Bloomberg news, the company is upbeat and hinted about its launch of new products in the coming period. It has been working on a Heart rate monitor that users can attach to their arms and a rowing machine.
Peloton has introduced treadmills earlier but had to recall them in May. It brought back the lower-end treadmill in August but not the more expensive model, which was linked to a child’s death.
On Thursday, Peloton said that its “trough” of the 2022 fiscal results was its quarter one result as it goes into the holiday season with a healthy inventory. However, its Precor business, a division that sold workout equipment to hotels, dorms, and gyms and acquired in 2021, faced supply chain struggles.
The average monthly workouts per subscription rate came down from 20.7 to 16.6 after people started going out to the office. Gyms, however, saw their fortune recover as Planet Fitness Inc. reported a record high after reporting better than anticipated profits.
Peloton is also trying to woo middle-class consumers by trying to shed its more upscale image. There was a lingering perception that Peloton was a luxury product. The company intends to increase its marketing efforts ahead and during its peak seasonal selling period.
