Peloton (PTON) Stock Battered on Light Guidance, Results Seen as 'Difficult'

Shares of Peloton (NASDAQ: PTON) are down more than 23% in premarket trading Tuesday after the company issued weaker-than-anticipated Q4 revenue guidance.

PTON reported FQ3 revenue of $964.3 million, down 24% YoY and below the consensus estimates of $971.6 million. The company also reported a loss per share of $2.27 for the third quarter. Adjusted EBITDA loss stood at $194 million, compared to the $63.2 million profit in the year-ago quarter, while analysts were looking for a $132.1 million adjusted EBITDA loss.

Connected fitness revenue came in at $594.4 million, down 42% YoY and missing the estimated $607.8 million. The company generated $369.9 million in subscription revenue, up 55% YoY and topping the analyst consensus of $361.5 million. Peloton reported 2.96 million connected fitness subscribers in the quarter, up 42% YoY and slightly above the expected 2.9 million.

As for the fourth quarter, the exercise equipment maker said it expects revenue in the range of $675 million to $700 million, significantly below the analyst estimates of $820.9 million. PTON anticipates Q4 adjusted EBITDA loss of $115 million to $120 million, while analysts were projecting a loss of just $19.9 million. The company expects to report 2.98 million connected fitness subscribers in Q4, almost in line with the estimated 3 million.

Peloton said lower revenue and connected fitness gross margins, along with higher operating expenses, weighed on the company’s operations and were the primary drivers behind its YoY declines.

The company forecasts $165 million in operating expense reductions in the second half of FY2022 and roughly $450 million in savings for FY 2023. Peloton said its target is to develop a global connected fitness platform with 100 million members.

“Balance sheet challenge has been managing inventory. We have too much for the current run rate of the business, and that inventory has consumed an enormous amount of cash, more than we expected, which has caused us to rethink our capital structure,” said CEO Barry McCarthy in a shareholder letter.

The company signed a binding commitment letter with Wall Street banks including JPMorgan and Goldman Sachs to borrow $750 million in 5-year term debt.

Needham & Company analyst Bernie McTernan saw FQ3 results as “difficult.”

“PTON had a difficult earnings report, as it showed a wider than expected adj. EBITDA loss in FY3Q22 and provided lower than expected revenue and adj. EBITDA guidance for FY4Q22E. As we look to FY'23E, our focus during the call will be new CEO Barry McCarthy's priorities and the levers needed to reach FCF positive in '23E and beyond,” McTernan told clients shortly after the earnings report was released.

By Senad Karaahmetovic

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