Peloton Interactive Inc (PTON) shares soared 35% on Thursday after the company delivered a strong fourth-quarter performance, marking its first sales growth in nine quarters. The exercise equipment company, known for its connected fitness products, exceeded Wall Street estimates, demonstrating progress in its turnaround strategy.
Despite a mixed full-year outlook, Peloton’s fourth-quarter results highlighted positive trends. Revenue for the quarter ended June 30th reached $643.6 million, a slight increase of 0.2% year-over-year (YoY). This represents a significant achievement for Peloton, which had not experienced sales growth since the holiday quarter of 2021. The company managed to achieve this growth during a typically slower period, when many people are traveling and spending time outdoors.
While Peloton’s pricy connected fitness hardware sales continued to decline by about 4%, the company experienced growth in its subscription revenue, which increased by 2.3%. This growth was driven by the company’s success in expanding its reach through the secondary market, with revenue from this segment growing by 16% YoY.
Peloton’s commitment to profitability was evident in the narrowed losses for the quarter. The company reported a loss of $30.5 million, a significant improvement from the $241.1 million loss reported in the same quarter last year. Adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) reached $70 million, surpassing StreetAccount’s estimate of $53 million. Peloton also generated $26 million in free cash flow, a notable turnaround from the negative $74 million in free cash flow reported in the same quarter last year and the negative $8 million in the previous quarter.
The company achieved this success by significantly reducing its sales and marketing spending by 19% YoY, demonstrating its focus on improving profitability. Peloton plans to continue these cost-cutting measures throughout the current fiscal year.
Despite its progress, Peloton still faces challenges. For the current quarter, the company projects sales between $560 million and $580 million, which is lower than LSEG’s estimate of $609 million. However, Peloton expects stronger EBITDA compared to StreetAccount’s estimate of $45 million, with its outlook ranging from $50 million to $60 million. For the full year, the company anticipates sales between $2.4 billion and $2.5 billion, which falls short of LSEG’s estimate of $2.7 billion.
Peloton’s turnaround efforts are driven by a multi-pronged strategy that includes reducing costs, improving its balance sheet, and focusing on growth through profitability. The company’s restructuring plan, which involved a 15% workforce reduction, is already yielding positive results, with annualized cost savings of $200 million expected by the end of fiscal 2025.
While Peloton’s focus remains on improving the user experience, the effects of subscriber growth are expected to be seen over the long haul and are not anticipated during the current fiscal year. Overall, the recent results highlight Peloton’s commitment to turning the business around and achieving sustainable growth.
