Peloton to Sell 29M Shares of Stock to Raise $1B

Peloton Stock Takes a Hit After Q1 FY22 Earnings Report

The company lowered its guidance for Q2 and the fiscal year ahead.

Last week, Peloton Interactive Inc. reported first quarter results for their fiscal year 2022, and the year is off to a rocky start for the fitness company. Many categories saw significant growth including connected fitness subscriptions, paid digital subscriptions, number of workouts, and gross margin. Most notably, however, was the company’s net loss of $(376.0) million, or $(1.25) per diluted share.

As a result of the disappointing earnings report, the company’s stock fell 36% the day after the earnings announcement, reports The Motley Fool, and it has continued to fall. The day of the earnings report – November 4, 2021 – Peloton (NASDAQ: PTON) was valued at $86.06 per share. As of 7:59 p.m. EST yesterday, Peloton stock had dropped to $48.95 per share.

Source: Google

Subscription highlights

Here are subscription highlights from the company’s first quarter of fiscal year 2022:

  • At the end of the quarter, the company had 2.49 million Connected Fitness subscriptions, an 87% increase, and 887,000 paid Digital Subscriptions, a 74% increase.
  • Total members grew to more than 6.2 million.
  • Connected Fitness subscription workouts increased 55% to 120.5 million, averaging 16.6 monthly workouts per Connected Fitness subscription, down from 20.7 during the same period last year.
  • Average net monthly Connected Fitness Churn was 0.82%. The retention rate for 12 months was 92%.

Other quarterly highlights

The company provided the following additional quarterly highlights:

  • Total revenue for the quarter was $805.2 million, a 6% increase year-over-year.
  • Connected Fitness revenue was $501.0 million, a 17% decrease year-over-year, while subscription revenue was $304.1 million, a 94% increase year-over-year.
  • Operations expenses were $622.4 million, a 140% increase year-over-year.
  • Gross margin for the quarter was 32.6%. Connected Fitness Product Gross Margin was 12.0%.
  • Subscription Gross Margin was 66.7%, and Subscription Contribution Margin was 69.6%.
  • Adjusted EBITDA was $(233.7) million and an adjusted EBITDA margin of (29.0%).
  • As noted above, Peloton reported a net loss of $(376.0) million, or $(1.25) per diluted share.
  • The company ended the quarter with $924.2 million in cash, cash equivalents and investments in marketable securities.

Second quarter and full-year guidance

Peloton offered the following guidance for the second quarter of fiscal year 2022:

  • The company will end the quarter with 2.8 million to 2.85 million Connected Fitness Subscriptions.
  • Estimated total revenue between $1.1 billion and $1.2 billion
  • Gross profit margin of approximately 24%
  • Adjusted EBITDA of $(325) million to $(350) million

For the full fiscal year 2022, Peloton offered the following guidance:

  • The company estimates it will end the year with 3.35 million to 3.45 million Connected Fitness Subscriptions. This is down from Peloton’s previous guidance of 3.63 million Connected Fitness Subscriptions, provided in the company’s Q4 FY2021 earnings report.
  • Estimated total revenue between $4.4 billion and $4.8 billion. This is down from Peloton’s previous guidance of $5.4 billion in total revenue.
  • Gross profit margin of approximately 32%. This is down slightly from previous guidance of 34%.
  • Adjusted EBITDA of $(425) million to $(475) million. This is down significantly from previous guidance of $(325) million.

“As discussed last quarter, we anticipated fiscal 2022 would be a very challenging year to forecast, given unusual year-ago comparisons, demand uncertainty amidst re-opening economies, and widely-reported supply chain constraints and commodity cost pressures,” said Peloton in its quarterly shareholder letter. “Although we are pleased to have delivered first quarter results that modestly exceeded our guidance, a softer than anticipated start to Q2 and challenged visibility into our near-term operating performance is leading us to recalibrate our fiscal year outlook.”

How will Peloton adjust?

In the company’s shareholder letter, Peloton said it would look at its operating costs and make adjustments to better align investments with their updated guidance. The company has also made adjustments to make their products and services more accessible to a wider customer base, specifically younger and less affluent customers. In August, the company lowered the price of its original bike to $1,495, or $39 a month with 39 months of interest-free financing. While the drop in price has attracted some new customers, Peloton said their products are still perceived as a luxury item, and they will target their marketing to better address their products’ value proposition.

Peloton has also focused time, attention and money on content, adding instructors, new scenic rids and runs and a new outdoor running program. Their software includes to features to increase accessibility and reduce member friction points.

Image courtesy of Peloton

Insider Take

In the company’s first quarter summary, Peloton addressed the elephant in the room – the continued impact of the Tread product recalls which impacted the company’s total revenue, expenses and margins. Other factors such as bike price reductions, supply chain and logistics expenses also contributed to the company’s less-than-stellar performance. Fold into that some post-COVID uncertainty, and it looks like fiscal year 2022 will continue to be a rocky road for Peloton. Overall, they have high quality, well respected products and a growing subscriber base, but there will be growing pains before the company is back in the black.

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