peloton tread

Peloton (NYSE: PTON) stock is trading sharply lower in US premarket price action today after it missed both the topline and bottomline estimates for the fiscal first quarter of 2023.

These post-earnings release crashes have become quite common for Peloton and the stock now trades at less than a third of its 2019 IPO price. The drawdown from the all-time peaks is even scary and the stock now trades at only about 5% of its all-time high prices.

Peloton reported revenues of $616.5 million in the fiscal first quarter of 2023. The revenues fell 23% YoY and 9% sequentially and fell short of $650 million that analysts were expecting. The company’s quarterly revenues have more than halved from the all-time high quarterly revenue of $1.26 billion.

Importantly, its Connected Products revenues have dropped considerably and plummeted 59% YoY in the fiscal first quarter. However, its Subscription revenues have been a silver lining. In Q1 FY 23, its Subscription revenues increased 36% YoY to $412.3 million.

It is the second consecutive quarter where the company got more revenues from subscriptions than product sales. Peloton posted a net loss of $408.4 million in the September quarter.

While the losses narrowed from the $1.4 billion loss in the corresponding quarter last year, its per-share loss of $1.20 was almost double the 64 cents per share loss that analysts were expecting.

Peloton Stock Falls After Earnings Miss Estimates

Peloton stock is trading lower in premarkets today after releasing its earnings. The company also spooked markets with its guidance for the current quarter. It guided for revenues between $700-$725 million for the December quarter which fell short of the $874 million that analysts were expecting.

While the guidance implies a sequential rise in revenues, it would mean yet another quarter of a steep yearly decline in revenues. Commenting on the revenue guidance, PTON said, “Given macro economic uncertainties we believe near-term demand for Connected Fitness hardware is likely to remain challenged.”

PTON Partnered With Amazon to Sell Its Products

Notably, earlier this year Peloton partnered with Amazon to sell its equipment on its e-commerce platform. Amazon held its second Prime Day of 2022 last month where it also highlighted Peloton as among the key products available on sale.

Amazon posted its Q3 2022 earnings last week and the tepid guidance stoked recession fears. The company also sounded circumspect about the upcoming holiday season. Amazon stock has plummeted this year but most Wall Street analysts see it as a buy. We have a guide on how beginners can buy Amazon stock.

Peloton is trying to turn around its business under Barry McCarthy who took over as the CEO earlier this year only. In the shareholder letter, McCarthy said, the turnaround is a “work in progress” but emphasized that “the ship is turning.”

He added, “For the last nine months my goal has been to turn around Peloton and position it for sustained growth and scale.” McCarthy added, “I thought it would take a year. We are beating that timeline.”

Barry McCarthy on Peloton Turnaround

Notably, PTON has taken several steps to turn around the business and intends to become free cash flow positive in the second half of 2022. However, McCarthy said that it wasn’t a “guaranteed outcome.”

He added, “There are risks we will underachieve our forecast, particularly in this economic climate and given the outsized importance and uncertainty of the holiday selling season on overall performance.”

It has slashed its workforce and is moving from a fixed cost to a variable cost model. The company has changed its business strategy and has partnered with third parties to sell its products. Along with Amazon, it partnered with Dick’s Sporting Goods to sell its products. Peloton is also putting its bikes in all the Hilton Hotels in the US.

Growth Stocks Have Sagged

Peloton also scrapped the Ohio factory, where it was set to invest $400 million to manufacture products in the US. The company would now be selling the plant in order to raise cash.

While PTON stock has plunged, many analysts continue to remain bullish and have maintained their buy rating on Peloton stock. JPMorgan is bullish on PTON as the company transitions from a fixed to a variable cost structure. Notably, while Peloton’s equipment sales are coming down, its subscription revenues are rising.

Former stay-at-home winners like Peloton, Chegg, Teladoc Health, and Zoom Video Communications have been feeling the heat as the economies have reopened and these companies are finding it hard to repeat the stellar growth of 2021. A slowing economy does not bode well for Peloton either as consumers have shunned many discretionary products amid high inflation.

Robinhood stock is meanwhile trading higher today after it reported better-than-expected earnings for the third quarter of 2022. However, like Peloton, its revenues are way below what they were at their peak.

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