Peloton’s stock tanks 25% as revenue outlook falls short, bike recall costs pile up

Peloton said Wednesday that the May recall of its original Peloton Bike came with costs that “substantially exceeded our initial expectations” as more customers than anticipated opted for replacement seat posts. Additionally, about 15,000 to 20,000 impacted members opted to pause their subscriptions in the fiscal fourth quarter while they waited for the replacement part.

See more: Peloton is recalling 2 million exercise bikes due to injury risks

While Chief Executive Barry McCarthy said in Peloton’s shareholder letter that the company saw pro-forma free cash flow of $1 million when excluding the impact of a legal settlement with Dish Network Corp.
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he was measured in discussing the performance.

Peloton’s free cash flow was “barely positive and only positive on a pro-forma basis, which was not the goal we set for the business,” he said. “Nevertheless, we achieved an important milestone in rightsizing the cost structure of the business.”

The company logged a fiscal fourth-quarter net loss of $242 million, or 68 cents a share, whereas it lost $1.26 billion, or $3.72 a share, in the year-before quarter. Analysts tracked by FactSet were expecting a 40-cent per-share loss.

Peloton also reported a $35 million loss on the basis of adjusted earnings before interest, taxes, depreciation and amortization (Ebitda) whereas the company racked up a $289 million loss on the metric a year before.

Revenue fell to $642 million from $679 million, while analysts were modeling $641 million. The company disclosed that it saw a seasonal slowdown in hardware sales and higher-than-expected churn for its connected fitness subscription offering.

“The slowdown exceeded our expectations through May and through the first three weeks of June as consumer spending shifted toward travel and experiences,” McCarthy said. “Then eight weeks ago the trend reversed itself, and we began to see a reacceleration in hardware sales.”

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For the September quarter, Peloton models $500 million to $600 million in revenue, while analysts were looking for $647 million.

“We don’t currently expect to remain free cash flow positive in the two upcoming quarters, mainly due to seasonality of our hardware sales, timing of inventory payments, marketing spend as we invest for growth and prepare for the holiday season, and one-time cash outlay for seat posts; but we do expect to achieve this objective once again in the second half of FY24,” McCarthy said in a shareholder letter.