The rapid rise quarterly losses, declining revenue, along with a ballooning debt burden, have been key ingredients to Peloton’s (PTON) recent difficulties. Peloton stock has downshifted, but now might be time to bet on a turnaround. The company is set to report first quarter fiscal 2023 earnings results before the closing bell Thursday. The market has seemingly lost confidence that Peloton’s at-home connected subscription platform can be monetized to produce sustainable results.
But it’s hard to remain pessimistic about the company’s ability to turn things around. It’s possible that all of the bad news is now priced into the stock. Management has outlined ways to turn things around, including cutting nearly 800 jobs, while closing some of its locations to preserve profits. To address waning revenue growth, the company has recently struck a deal with Amazon (AMZN) to sell its products on its platform, while also aiming to boost revenue by renting certain products.
What’s more, the company is also experimenting with “Fitness as a Service” which it hopes can get more people excited about the products, as well as price increases on selects items such as the Bike+ and Tread products to boost its profit margins. It remains to be seen how quickly these initiatives can spark a recovery. But on Thursday, aside from the top and bottom line results, the company must talk about how these actions can boost engagement and lead to expanding gross margins and free cash flow in the quarters ahead.
In the three months that ended September, Wall Street expects the New York-based company to lose 67 cents per share on revenue of $637.03 million. This compares to the year-ago quarter when the loss was $1.10 per share on revenue of $805.2 million. For the full year, ending July 2023, the company is expected to lose $2.07 per share, better than a $7.79 loss a year ago, while full-year revenue is expected to decline 14.7% year over year to $3.06 billion.
The projected narrowing loss from a year ago suggests that Wall Street sees encouraging signs about the fundamentals of the business. The Wall Street Journal reported that the company had initiated another round of layoffs with plans to cut 500 jobs, representing about 12% of the company’s workforce. The Journal also noted that new CEO Barry McCarthy was cited as “giving the unprofitable company another six months or so to significantly turn itself around,” after which, the company’s viability as a standalone business would be reassessed.
Rumors have circulated that Peloton could be up for sale if it can turns things around. Amazon and Apple (AAPL) have been cited as potential suitors. Until any deal manifests, the company must show it can stand on its own. In the most recent quarter, the company missed on both the top and bottom lines, with Q4 revenue falling 27% year over year to $678.7 million, missing estimate by $4.23 million, while Q4 adjusted EPS of $1.32 missed the mark by 55 cents.
On the positive side, the company ended the quarter with 980,000 app subscriptions, up 12.6% year over year. However, the guidance was disappointing, raising more questions about the company’s survivability. With reset expectations, on Thursday investors will want to hear how the company plans to deliver revenue and profit growth in the quarters ahead.
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