Peloton said Thursday it is digging itself out of the red and eked out a slight sales increase for the first time in nine quarters as it slashed its overall losses.
The beleaguered connected fitness company, which is currently being run by two board members after former CEO Barry McCarthy resigned earlier this year, saw sales grow by 0.2% during its fiscal fourth quarter. While only a modest uptick, it’s the first time Peloton posted year-over-year revenue growth since its 2021 holiday quarter.
The company also indicated it’s ready to focus on profitability over growth with signifcant cuts to its marketing and sales spending and meaningful increases to free cash flow and adjusted EBITDA. Those cuts helped Peloton narrow its quarterly losses to $30.5 million from $241.1 million in the year ago period.
Shares rose more than 10% in premarket trading.
Peloton’s results came in well ahead of estimates, but it delivered a mixed outlook for the year ahead.
Here’s how the Bike and Tread maker performed compared with what Wall Street was anticipating, based on a survey of analysts by LSEG:
- Loss per share: 8 cents vs. 17 cents expected
- Revenue: $644 million vs. $631 million expected
For the three-month period that ended June 30, Peloton significantly narrowed its losses. The company posted a loss of $30.5 million, or 8 cents per share, compared with a loss of $241.8 million, or 68 cents per share, a year earlier.
Sales rose to $643.6 million, up about 0.2% from $642.1 million a year earlier. That’s only a $1.5 million increase, but Peloton did it at a time when sales are typically a bit slower for the company, because the quarter bleeds into the summer when people are more focused on going out and traveling than working out. The last time Peloton delivered year-over-year sales growth was during its holiday season in 2021, which is typically the company’s strongest quarter.
Ever since Peloton’s pandemic heyday came to an end, the company has struggled to generate free cash flow and ensure it has enough assets on its balance sheet to cover its many liabilities. Earlier this year, it announced a sprawling restructuring plan that included cutting 15% of the company’s global workforce to achieve $200 million in annualized cost savings by the end of fiscal 2025.
Those efforts are starting to bear fruit.
During the quarter, Peloton delivered adjusted EBITDA and free cash flow for the second consecutive quarter – a feat it had not pulled off since the height of the Covid-19 pandemic. It posted $70 million of adjusted EBITDA, far more than the $53 million that analysts had expected, according to StreetAccount.
That metric was up $105 million compared to the year-ago period and $64 million quarter over quarter.
Peloton also generated $26 million in free cash flow, compared to negative $74 million in the year-ago period and $8 million in the prior quarter.
For the year ahead, Peloton is planning to invest in its hardware and software to deliver a better user experience, among other initiatives. However, its guidance assumes that investments in these new itinitaitves “will not deliver subscriber growth within the fiscal year,” indicating Peloton may finally be shifting its focus away from growth in favor of profitability and free cash flow generation.
That’s evidenced by its reductions to sales and marketing spending — an expense that has long dragged down Peloton’s balance sheet and has been criticized as being too high for the company’s size.
During the quarter, Peloton cut sales and marketing spending by $25.5 million, or 19% year over year. It said it expects to continue to make cuts to its marketing budget throughout fiscal 2025.
For the current quarter, Peloton is expecting sales to be worse than Wall Street expected but is guiding to higher than forecast adjusted EBITDA. The company said it expects sales to be between $560 million and $580 million, compared to estimates of $609 million, according to LSEG. It’s expecting to post adjusted EBITDA of $50 million to $60 million, compared to estimates of $45 million, according to StreetAccount.
StreetAccount analysts had expected the number of connected fitness subscribers to be 2.96 million during the current quarter, but Peloton expects a range of 2.88 million to 2.89 million instead.
For the full year, Peloton expects sales to be between $2.4 billion and $2.5 billion, compared to estimates of $2.7 billion, according to LSEG.