Peloton Continues to Lose Money, Turns to Wall Street for aid
Peloton Continues to Lose Money, Turns to Wall Street for Help
Reading about Peloton’s latest struggles is like watching somebody run on a treadmill with their shoelaces tied together. The lurching, stumbling body is still in motion, but the person can barely do enough to stay upright while trying not to fall on their face.
Peloton announced another major setback Tuesday with its third fiscal quarter earnings report, showing a bigger-than-anticipated loss in sales, with an even weaker sales outlook going into next quarter.
Losses were approximately $757.1 million for the quarter that ended March 31. To cover the loss, the company is financing a five-year $750 million loan from big banks JPMorgan Chase and Goldman Sachs. CNBC reported that in a post-earnings call, Peloton CEO Barry McCarthy said that they can go cash flow positive once they get the loans in gear, “despite what happens in the economy.”
Though changes in the economy have already had a massive impact, not just on Peloton but on practically all tech companies through the first portion of 2022. The exercise equipment manufacturer was at a 42% loss in revenue compared to the same time last year. The company cited reduced consumer demand as the covid pandemic ebbed.
At the same time, the company said subscription revenue grew in the same year. The company’s internet-connected bikes and treadmills allow users to stream exercise classes and access additional features for a monthly fee, but back in April Peloton announced it planned to increase its $39 monthly fee to $44 for the first time in the company’s history. The company hopes that by increasing fees and lowering the cost of bikes it can take advantage of the trend.
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While the fee might result in a loss of subscribers, according to the company, bikes have been piling up in warehouses due to decreased sales, leading to further expenses.
McCarthy wrote “We have too much for the current run rate of the business,” meaning that they will need to move product at a faster pace to reduce storage costs. The CEO did point out that there’s little risk of the bikes becoming obsolete while they sit in storage, calling it a “cash flow problem” rather than a “structural issue.”
The company also saw more returns than expected of its Tread+ machine, which was recalled last May after a child died after being pulled under the rear of the treadmill. Peloton said the recall cost them $18 million over the year.
The CEO also said that the tech debt they’ve accrued has led to a tax on their ability to maneuver. He cited poor execution of last mile distribution, adding that “We’re working on it.”
If Peloton is seeming more and more like a dented punching bag, it might be because the company’s efforts to turn things around have not been going exactly as planned, at least so far. Back in February the company replaced a chunk of its executive staff including its CEO while simultaneously kicking about 2,800 of its employees to the curb. McCarthy came on after working as CFO for Spotify and Netflix.
“Turnarounds are hard work,” McCarthy wrote in the start of his letter to investors. The company said in February that it was working to reduce annual costs by $800 million and slash capital expenditures by another $150 million.
The company invested heavily in inventory and logistics due to pandemic-based demand, but as that demand dried up, the company dropped plans to build a $400 million Ohio factory and worked to further decrease warehouse space, which seemed to have been especially hard because of how few bikes Peloton has been able to move.