Peloton CEO thinks losing $1.2 billion is a sign of ‘substantial progress’
The peloton numbers don’t look good. In its Q4 2022 earnings release this morning, the company reported an operating loss of $1.2 billion, a 28 percent revenue decline, a decline in membership and a more than 1 percent drop in monthly subscribers. (Maybe ever?) And that’s just the tip of the iceberg. In short, losses were higher than Peloton and investors expected.
And yet, Peloton CEO Barry McCarthy would have you believe that the numbers actually represent “substantial progress” and the real start of Peloton’s comeback story.
“Reporters will look at our Q4 financial performance and see declining revenues, negative gross margins and deepening operating losses. They will say it threatens the viability of the business,” McCarthy says in his shareholder letter. But he clearly doesn’t agree. According to McCarthy, investors should be happy that a large portion of that $1.2 billion figure — $415 million, to be exact — costs to get back on track.
Still, it’s hard to turn a big loss into a win when you’ve lost your sixth straight quarter and refuse to give a vision for 2023 — which is probably why McCarthy has come up with dramatic metaphors involving speeding cargo ships and daring rescues. the Mediterranean
There is a kernel of truth somewhere in that muddled metaphor. Peloton has made some key changes to “come back,” including a third round of layoffs, raising subscription costs, experimenting with product pricing, planning to close retail locations, shrinking its distribution and manufacturing network, and redesigning its bikes. They can be self-assembled for easy shipping. All these efforts have resulted in some economic progress. Instead of burning $650 million in cash per quarter, that number improved to $412 million in Q4. As such, that $1.2 billion loss could have been worse.
And while overall churn is up, churn rates for its One Peloton Club pilot program were below expectations at less than 3 percent. The program allows members to pay a flat $89 monthly fee to combine the cost of a bike and membership. In September, the company plans to begin marketing expansion for the program across the country. He also pointed out that the program is bringing in younger, more value-oriented buyers.
That said, McCarthy was hesitant to “really lean” on bike rentals as a panacea for the company’s financial woes. Because the company has yet to figure out whether the program is “a nuclear bomb or a path to the promised land”.
Subscriptions were also low. It remained mostly flat from last quarter but was up 27 percent from this time last year. Subscription revenue was also up 36 percent from last year to $383.1 million, overtaking hardware revenue in the overall mix. McCarthy has been bullish on Peloton subscriptions as a key to success since day one – and it looks like his efforts are starting to pay off.
McCarthy highlighted members’ enthusiasm for Peloton studios in New York and London. Specifically, he named Lizzo as a superfan in a shareholder letter, saying a surprise studio drop-in from the singer led to 426,000 workouts and “the highest participation of any cycle class within 7 days of the air date.”
However, convincing investors will take sheer optimism, barrel-scraping and bombastic turns of phrase. Peloton’s stock fell 13 percent after jumping 20 percent less than 24 hours earlier, and it had partnered with Amazon to sell the bikes. That said, McCarthy acknowledged that there is still a lot of work to do, and that the company won’t see the fruits of its efforts until 2023.