The company reported a loss of 79 cents per share in the March quarter, compared to Wall Street’s estimate of 48 cents per share, according to FactSet. Gross margins were 36.1% below the company’s forecast of 39%. Sales fell 22% year over year to $748.9 million, beating analysts’ expectations of $711 million.
Shares of Peloton (stock ticker: PTON) fell 15% to $7.60 in recent trading, erasing its gains in 2023. The stock is down 55% in the past 12 months.
The company said it finished the quarter with 3.11 million connected fitness subscriptions, beating analyst expectations of just under 3.09 million. Connected Fitness subscribers pay $44 per month to access the vast majority of classes and features available on Peloton-branded bikes, treadmills, and rowing machines. But the company expects to lose more connected fitness subscribers than it adds in the June quarter, which puts its forecast range for the quarter between 3.08 million and 3.09 million.
Peloton signaled a historical trend of seasonal declines, but analyst Simon Siegel at BMO Capital Markets noted that it could be a sign of a smaller-than-expected market, or TAM.
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“Critically, though management is pointing somewhat to seasonality, management channeled a net decline in Q4 memberships, the first time it’s headed down (confirming our concerns about the smaller TAM),” he wrote. “We still believe PTON can be better presented as a smaller, healthier company.”
The company also said it had reached a $75 million settlement and patent licensing agreement with DISH Technologies after the International Trade Commission determined that some of Peloton’s transmission technologies infringed DISH’s patents.
Since taking over as CEO in February 2022, Barry McCarthy has taken steps to cut costs and experiment with new ways to bypass inventory. Last year, the company leased equipment that allows users to pay for ownership, the Peloton rowing machine. The company also raised a connected fitness subscription from $39 a month, which the company’s former management team dubbed “holy,” “holy,” and “the golden goose.”
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“Later this month, we will be relaunching our brand to better communicate the brand’s value proposition, and we will reintroduce the Peloton app with a tiered membership structure as a mobile gateway to our amazing fitness content,” McCarthy said in a letter to shareholders.
Peloton said it expects fourth-quarter revenue of between $630 million and $650 million and loss before interest, taxes, depreciation and amortization of between $10 million and $25 million.
Write to Connor Smith at connor.smith@barrons.com and Adam Clarke at adam.clark@barrons.com
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