Peloton raised its full-year profit guidance after reporting both sales and earnings topped analyst targets in the first quarter ended September 30. However, Peloton also indicated that sales for the holiday quarter will come in softer than expected due in part to reduced marketing spend.

Total revenue in the quarter was $586.0 million, down 1.6 percent from $596 million a year ago. Total revenue was above the high end of its $560 million to $580 million guidance range and analysts’ consensus estimate had been $574.8 million.

Connected Fitness Products revenue was $159.6  million, a decrease of 11.6 percent year over year. Subscription revenue reached $426.3  million, an increase of 2.7  year over year. The higher subscription revenue was a result of higher Paid Connected Fitness and Paid App subscribers.

Peloton’s reported net loss for the three-month period was $900,000, or effectively breakeven on a per-share basis, compared with a net loss of $159.3 million, or 44 cents per share, during the same period a year earlier. Analysts’ consensus estimate had been a loss of 16 cents.

Adjusted EBITDA was $115.8 million in the first quarter, which was $55.8 million above the high end of its guidance range, and an $106.7 million improvement Y/Y. Outperformance was partially driven by roughly $15 million of timing savings within FY25.

Peloton wrote in its quarterly shareholder letter, “Our Q1 FY25 results reflect continued progress toward Peloton’s overarching financial goal of making our business sustainable and profitable for the long term. We had a strong Q1 FY25 and performed above our guidance on all of our key metrics. We’re especially pleased with our bottom line results and Free Cash Flow – we’re achieving our cost savings targets faster than we expected as a result of strong execution by our talented Peloton team members.”

Gross margins in the quarter were 51.8 percent, which was 180 bps (basis points) above its guidance of 50 percent, due to favorable Connected Fitness Products gross margin and revenue mix-shift toward its Subscription segment. Connected Fitness Products gross margin was 9.2 percent, ahead of internal expectations while Subscription gross margin was 67.8 percent, in line with internal expectations.

Total operating expenses, including Impairment and restructuring expenses, were $291.2  million for the quarter, a 30.3 percent reduction year over year. The reduction reflects a decrease in personnel-related expenses tied to headcount cuts, a decrease in professional services fees and lower spending on advertising and marketing programs.

Peloton recognized $7.8 million of impairment and restructuring expense, of which $4.9 million was non-cash. The non-cash charges were primarily related to asset write-downs in relation to exiting retail showrooms. The cash charges were comprised of $3.4 million in exit and disposal costs and professional fees, offset by a $0.5 million net benefit from lower severance and other personnel costs. Peloton also recognized $23.5 million of supplier settlements primarily due to accruals for the year-ago quarter related to the settlement of disputes with a third-party supplier about certain alleged past and future commitments.

Operating Metrics
Peloton ended the quarter with 2.90 million Ending Paid Connected Fitness Subscriptions, a net decrease of 81,000 in the quarter. This exceeded the high end of its guidance range by 10,000 subscribers. The main driver of the subscriber outperformance was favorable net churn as a result of fewer subscription pauses, partially offset by slightly lower gross additions.

Average Net Monthly Paid Connected Fitness Subscription Churn was 1.9 percent, slightly favorable versus expectations, in-line with the prior quarter, and an increase of roughly 40 bps year over year. As previously noted, net churn performance from Q1 FY24 included a one-time benefit as a result of elevated unpauses, following elevated pauses in response to its original Bike seatpost recall in Q4 FY23.

Peloton ended the quarter with 582,000 Ending Paid App Subscriptions, a net reduction of 33,000 in the quarter. This result exceeded the high end of its guidance range by 12,000 from both higher additions and better than expected Average Monthly Paid App Subscription Churn, which was 7.1 percent. Peloton said in its quarterly shareholder letter, “In Q1 we’ve continued to scale back the amount of media spend to support growth in Paid App Subscriptions to maximize media efficiency. As we continue evolving our App with software enhancements such as Personalized Plans and Private Teams, and 4 developing new offerings like the Strength+ App beta, we may elect to invest more in App media if we see signals that suggest we can accelerate growth of Paid App subscribers efficiently.”

Q2 Outlook

Peloton’s guidance for Q2 FY25 Ending Paid Connected Fitness Subscriptions of 2.84 to 2.86 million reflects a sequential decrease of 50,000 subscribers at the midpoint. Peloton expects its Average Net Monthly Paid Connected Fitness Subscription Churn rate to slightly improve sequentially in Q2.

Peloton’s Q2 FY25 Ending Paid App Subscription outlook of 560,000 to 580,000 reflects a sequential decrease of 12,000 subscribers at the midpoint, as a result of a decision to limit App media spend.

Revenue guidance of $640 million to $660 million reflects a sequential increase of $64 million at the midpoint as a result of these subscription trends, combined with an expected seasonal increase in hardware sales. The sales guidance was below Wall Street expectations of $671.4 million.

Total gross margin guidance of 46.5 percent reflects an expected sequential decline in Total Gross Margin of 534 bps as a result of a seasonal mix-shift toward its Connected Fitness Products segment during the holiday sales period.

Peloton’s adjusted EBITDA guidance of $20 million to $30 million reflects a sequential decline of $91 million at the midpoint, mainly due to higher sales & marketing expenses as we increase media spend for the holiday season.

Peloton’s Full Year FY25 guidance reflects the expectation that hardware sales will decline Y/Y, as well as an expectation that Average Net Monthly Paid Connected Fitness Churn will continue to increase modestly Y/Y and follow its historical seasonal pattern.

Peloton’s Full Year guidance range for Paid Connected Fitness Subscriptions of 2.68 to 2.75 million remains unchanged and reflects a broad range of outcomes.

Peloton’s Full Year guidance range for Paid App Subscriptions of 550,000 to 600,000, a 20,000 reduction versus its prior guidance, reflects its decision to limit App media spend as investments are made in product development to improve the Member experience. Additionally, as Peloton continues to improve its Member experience, Peloton said it sees clear opportunities to improve engagement, which could result in favorability to churn for both Connected Fitness and App. Peloton added, “While we are optimistic we can improve engagement through product and content innovation and evolving our marketing strategy, the timing of when we will start to see meaningful impact from these efforts is uncertain, and therefore not reflected in our guidance.”

Peloton’s FY25 outlook for revenue remains unchanged at $2,400 million to $2,500 million, as well as its outlook for Total Gross Margin, which remains unchanged at 49.0 percent. Peloton raised its FY25 Adjusted EBITDA guidance by $40  million to $240 million to $290  million, which reflects its continued improvements in profitability, largely due to Y/Y gross margin expansion, the operating cost savings expect to achieve related to its previously announced cost restructuring plan, and reduced Y/Y media spend.

Image and charts courtesy Peloton