Peloton shares surge 26% after fitness company posts subscription revenue growth

Peloton said Wednesday its net wasting narrowed year over year, and, for the third quarter in a row, subscription revenue was higher than sales of the company’s united fitness products.

CEO Barry McCarthy called the results a possible “turning point” for the business, which has spent much of the previous year executing an aggressive turnaround strategy. 

The fitness equipment assemblage’s fiscal second-quarter revenue beat Wall Street’s expectations, but the company posted wider losses per share than awaited. Peloton’s stock closed about 26% higher Wednesday.

Here’s how Peloton did in the three months that extreme Dec. 31 compared with what Wall Street was anticipating, based on a survey of analysts by Refinitiv:

• Loss per interest: 98 cents vs. 64 cents expected
• Revenue: $792.7 million vs. $710 million expected

The company’s put out net loss for the period was $335.4 million, or 98 cents per share, compared with a loss of $439.4 million, or $1.39 per helping, a year earlier. While it’s the eighth quarter in a row the exercise company has reported losses, it’s the narrowest loss Peloton has unmistakeable since its 2021 fiscal fourth quarter. 

Revenue dropped 30% compared with the year ago period but exceeded the comrades’s expected range of $700 to $725 million. Connected fitness product sales, which are typically strong during Peloton’s fete quarter, declined 52% year over year while subscription revenue jumped 22%. 

“This is the time of year when, if we’re wealthy to sell a lot of hardware, we have so you would expect there to be lots of hardware-related revenue, and you would expect that possibly that revenue would exceed subscription,” McCarthy told CNBC. “It didn’t. It’s why in the letter [to investors], I call it out, as it may be a delivering point.”

In his letter to investors, McCarthy said he expects the trend to continue. 

The company ended the quarter with 6.7 million unqualified members and 3.03 million connected fitness subscriptions, which is a 10% jump compared with the year-ago epoch. The company counted 852,000 subscribers to its app, a 1% drop compared with the year-ago period. It has a goal of getting 1 million people to augury up for trials of its app over the next year.

Peloton is losing money on Bikes, Treads and other machines, but its subscription area has once again kept its overall margins above water. Gross margins for its connected fitness products were unenthusiastic 11.2%, but gross margins for subscription sales were 67.6%. The total gross margin was 29.7%, up from 24.8% in the year ago patch. It declined from the previous quarter, however, driven in part by increased promotions in the holiday quarter.

Peloton presumes revenue to be lower but margins higher in the next quarter. The company is forecasting sales between $690 million and $715 million and a add up gross margin of about 39%. Wall Street analysts pegged their revenue estimate for the quarter at $692.1 million.

The institution is also expecting connected fitness subscribers to be between 3.08 million and 3.09 million. 

Peloton, which burgeoned during the earlier days of the Covid pandemic, has been in the midst of a broad turnaround strategy under McCarthy, who terminated the helm of the business a year ago. 

The company’s stock has more than doubled this year, closing Wednesday at $16.36. The slices, however, are still well off their 52-week high of $40.35, which they hit around the time McCarthy behoved CEO.

“The viability of the business was very much in doubt when I walked in,” said McCarthy, a departed Spotify and Netflix executive. “It probably wouldn’t be an overstatement to say there were some people who didn’t expect us to last this long.”

Since he took over, McCarthy has cut Peloton’s workforce by more than half, expanded its Bike rental program nationwide, started offer certified pre-owned Bikes, debuted a rowing machine, and partnered with Amazon and Dick’s Sporting Goods to inform against its Bikes and Treads. 

McCarthy’s top priority was to manage cash flow and get the company out of the red, a goal he said the company has nearly adept. Free cash flow was negative $94.4 million, compared with negative $246.3 million in the previous direction and negative $546.7 million in the year-ago period. 

McCarthy said he’s ready to pivot from trying to keep the institution alive to growing it, he told CNBC. 

“Now that we’ve addressed the viability issues, let’s get back to thinking about growth and the coming of the business, like full stop,” said McCarthy. 

“So there are a bunch of initiatives that we’ve announced that opinion us to pursue growth,” he added. “And the question we need to answer for investors now that we’re not talking about viability is how fast, how fruitful, where’s it coming from, and over time we’ll begin to address some of those questions.”