Shares of Peloton trading down about 33 percent in mid-day trading on Friday after the connected fitness maker slashed its forecast for the full fiscal year ending next June as demand for its exercise bikes and treadmills slowed faster than expected.
Peloton forecasted its full-year revenue coming in between $4.4 billion and $4.8 billion, $1 billion less at the low end than it projected three months ago. Its holiday-quarter sales forecast also missed market expectations.
“Many of the modeling assumptions that predicted e-commerce traffic that we made in August were too optimistic,” said CFOJill Woodworth on a call with analysts. “Our baseline traffic forecast reflected our unchanged view of the growing consumer interest in Connected Fitness, our growing market share in the category, our leading brand awareness, and expected increase by word-of-mouth. However, it is clear that we underestimated the reopening impact on our company and the overall industry.”
Woodworth pointed out that while a price drop in its Bike offering by $400 led to conversion rates that exceeded internal forecasts, overall traffic did not meet initial expectations. Woodworth added, “We have also seen a richer-than-anticipated mix of Bike versus Bike+ further impacting our revenue and our gross margin expectations.”
Peloton posted a net loss of $376 million, or $1.25 per share, in the first quarter ended September 30 compared with net income of $69.3 million, or 20 cents, a year earlier. Analysts had been looking for Peloton to post a loss of $1.07 per share.
Sales rose just 6.2 percent in the three months to September 30, the slowest pace since in more than a year. Sales reached $805.2 million, short of Wall Street’s consensus estimate of $810.7 million.
“Given the unprecedented circumstances presented by the global pandemic, we said last quarter that modeling the exit from COVID and the massive growth we saw in fiscal 2021 would be a challenging task, and that has certainly proven to be true,” said CEO John Foley on the call. “With reduced backlogs, our visibility into our future performance has become more limited. From forecasting consumer demand to accurately predicting logistics costs, our teams have never seen a more complex operating environment in which to guide our expected results this year.”
Connected Fitness segment revenue, which includes the contribution from Precor, in the quarter was $501.0 million, representing a 17 percent year-over-year decline. The decline primarily reflected fewer Bike portfolio deliveries compared to the year-ago period and the impact of the August 2021 price reduction on its original Bike.
Subscription revenue grew to $304.1 million, representing 94 percent year-over-year growth, driven by growth in Connected Fitness subscriptions from product sales and low average net monthly Connected Fitness churn of 0.82 percent, up from 0.73 percent in the prior quarter. Its Connected Fitness subscription base climbed to 2.49 million at the end of Q1, representing year-over-year growth of 87 percent.
Connected fitness subscribers completed 16.6 workouts per month, on average, a drop from 20.7 workouts a year earlier.
Sales and marketing expenses surged 148 percent to $284.3 million, representing roughly 35 percent of revenue. The year-over-year increase was primarily driven by advertising and marketing spending in support of its original Bike price reduction and the launch of the lower-priced Tread. The latter was just reintroduced for sale in the U.S. following a widespread recall.
Due to the uncertain nature of the pandemic, Peloton said it would present its outlook in ranges rather than single estimates. It sees its connected fitness subscriber count growing to between 2.8 million and 2.85 million in the second quarter. Sales are forecast between $1.1 billion and $1.2 billion. Analysts were looking for $1.5 billion.
For the year, it now anticipates connected fitness subscribers to be between 3.35 million to 3.45 million, down from a prior outlook of 3.63 million. Peloton added that in conjunction with its revised forecast, it would look at its expense base and adjust operating costs to align investments with new growth expectations.
Photo courtesy Peloton
