Peloton Interactive Inc. reported a larger loss than analysts forecast, cut its earnings guidance and signed an agreement with JPMorgan Chase & Co and Goldman Sachs Group to borrow $750 million in five-year debt, marking the last setbacks for the once favorite of the pandemic. . The shares fell about 17% when the market opened.
The results suggest that Peloton’s comeback effort is still far from taking hold, despite a shakeup earlier this year. In February, co-founder John Foley was fired as CEO after sales slowed and Peloton struggled to manage its production. He was succeeded by former Spotify Technology SA and Netflix Inc. CFO Barry McCarthy, who has promised to cut costs and generate more revenue for Peloton from subscriptions.
The fitness technology company reported revenue of $964.3 million in the fiscal third quarter on Tuesday, below a Wall Street estimate of $971.6 million. The net loss was $757.1 million, excluding some items, compared to a median estimate of $132.1 million.
Looking ahead, Peloton expects to report $675 million to $700 million in revenue in the fourth quarter, well below the average analyst estimate of $820.9 million. Peloton attributed the forecast failure to “softer demand” compared to its previous guidance and recent hardware price reductions.
Peloton had thrived during the early days of the pandemic, as lockdown consumers rushed to buy their bikes and treadmills. But the company went from boom to bust, and Peloton has lost more than 80% of its value in the past year. The shares fell to $11.71 in New York on Tuesday morning.
Since the February shakeup, which included thousands of layoffs, the stock has continued to fall. Under McCarthy, Peloton lowered the prices of its devices and tried new programs, such as a hardware leasing model. McCarthy has also promised to release new products, but hasn’t provided many details about what the company is working on.
The company said the number of members grew 5% quarter over quarter to 7 million, and the number of trainings during the quarter grew 32% to 184.3 million. In a letter to shareholders, McCarthy said his goal is to reach 100 million members, an effort that Chief Financial Officer Jill Woodworth acknowledged is “a long way from where we are today.” The way to get there is to make the digital app a huge success, McCarthy said, adding that international markets are also very important.
“Changes are hard work,” McCarthy said. “It’s intellectually challenging, emotionally draining, physically exhausting and consuming.”
Although McCarthy has only been on the job for three months, outside investors have complained that the company is headed in the wrong direction and should be put on the block.
In April, Blackwells Capital LLC reiterated its request to put the fitness company up for sale. “Peloton will continue to be undervalued as long as a close-knit group of insiders, who have proven incapable of creating value, continue to exercise voting power far above their economic interest,” Blackwells chief investment officer Jason Aintabi said. in a statement at the time.
Blackwell thinks Amazon.com Inc. or Netflix could be potential bidders for the company, which now has a market capitalization of less than $5 billion.
McCarthy has said he is not looking to sell the company, but other possibilities are on the table. Last week, Bloomberg reported that Peloton is looking to sell up to 20% of the company to an outside investor in a move to shore up cash and further its recovery.
In the earnings report, McCarthy acknowledged that with $879 million in cash on hand, that leaves the company “with minimal capitalization for a business of our scale.” As Peloton begins to sell excess inventory, he said the cash flow headwind should turn into a tailwind in fiscal 2023.
As McCarthy wrapped up the earnings call, which lasted less than an hour and skipped the usual roundup of numbers, he apologized for ending on a negative note. “Despite the share price, I’m optimistic about the way forward,” he said.
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