Peloton’s Turnaround Delivers Mixed Results


Peloton’s reported Q2’23 earnings are a mixed bag, showing while it can cut operational costs, it can’t manufacture demand.

By the numbers:

  • Net loss of $335.4M, an improvement from $439.4M a year earlier.
  • Revenue was $792.7M, beating analysts’ expectations by $82.7M but still down 30% YoY.
  • Connected fitness products lost $42.8M with gross margins of -11.2%, down from a profit of $51.4M and gross margins of +6.5% in Q2’22.
  • Subscriptions grossed $277.9M with margins of +67.6% vs. $229.6M and +68% in the prior year period.

Between the lines: This is Peloton’s eighth consecutive quarterly loss. And the company is still sitting on $791M in excess inventory.

But, CEO Barry McCarthy is optimistic that improved efficiency and a boost in high-margin subscriptions will lead to an “epic comeback”.

Since taking over for co-founder John Foley, McCarthy’s Peloton has shed nearly 5K jobs, outsourced equipment manufacturing, and nixed its white-glove delivery program. The effort improved free cash flow from -$546.7M last year to -$94.4M this year, with the goal to be cash neutral within a year.

While Q2 historically accounts for the bulk of hardware sales, revenue from subscriptions outpaced equipment for the third consecutive quarter.

But… Despite the positives, it’s too soon to tell if Peloton is just spinning its wheels.

Even with an expanded rent-a-bike program, slashed equipment prices, a new rower, and selling through Amazon and DICK’S Sporting Goods, subscription revenue declined by $1M from last quarter, equipment sales are down 52% YoY, and the much-hyped Peloton app lost 23K users.

This signals that perhaps Peloton has maxed out its core market, and, with a weak economy, gym visits on the rise, and a competitive connected fitness space, it’s unclear where Peloton’s finding the users required for a turnaround.

Looking ahead: By creating an open ecosystem, licensing its software to other equipment makers, and pursuing commercial sales, Peloton’s fitness-as-a-service model may be connected fitness’s last best hope.

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