Peloton Interactive Inc. shares plunged the most in seven months after the fitness company said the current quarter to be “among our most challenging” from a growth standpoint and a patent settlement will weigh on cash flow.
(Bloomberg) — Peloton Interactive Inc. shares plunged the most in seven months after the fitness company said the current quarter to be “among our most challenging” from a growth standpoint and a patent settlement will weigh on cash flow.
Peloton agreed to pay $75 million to settle an International Trade Commission dispute with Dish Network Corp. over content-streaming technology. The cost will put significant pressure on free cash flow in the fourth quarter, Chief Executive Officer Barry McCarthy said in a letter to shareholders.
“We were expecting a different outcome and could have appealed” the International Trade Commission decision, he said. “We believe our growth agenda is better served by the settlement because it eliminates a cloud of uncertainty and an enormous distraction to the day-to-day operation of our business, despite its adverse impact on Q4 cash flow.”
The shares tumbled as much as 17% to $7.31 in New York.
In an effort to boost growth, Peloton said it will relaunch its brand later this month, including reintroducing the Peloton app with a tiered membership structure. The company is seeking to engage new kinds of customers in fitness content, from strength and meditation to outdoor running. But historically the fourth quarter reflects a seasonal decline in subscriber growth and despite the relaunch the current period will be difficult, McCarthy said.
Peloton has struggled since an early-pandemic surge. Its stationary bikes had been a prized commodity during Covid-19 lockdowns, when cooped-up consumers sought out the equipment and binged on fitness classes. But demand dried up after people began heading back to offices and gyms, and the company found itself with a glut of inventory.
The CEO, a former Netflix Inc. and Spotify Technology SA executive, was hired in February 2022 after Peloton’s shares plunged, wiping out billions of dollars from its valuation. He shook up management, slashed jobs and outsourced businesses, with an eye to being cash flow positive by the quarter ending in June.
In its previous quarterly report, Peloton said that it had improved its cash flow and narrowed its losses. The company said that was a sign that it was no longer on the “brink of extinction.”
With the Dish settlement out of the way, McCarthy said the company can focus on growing the business. The company gave an upbeat quarterly revenue forecast, and sales in the fiscal third quarter were also better than expected. But the projected loss was far below estimates.
Sales will be $630 million to $650 million in the fiscal fourth quarter, outpacing the $614.4 million predicted by analysts. But Peloton said it expects a loss of $10 million to $25 million on the basis of adjusted earnings before interest, tax, depreciation and amortization. Analysts had projected an Ebitda loss of $1.2 million.
Sales in the third quarter fell 22% but were better than expected. Revenue was $748.9 million in the three months ended March 31. That compared with an average analyst estimate of $711.7 million. Peloton itself had predicted a range of $690 million to $715 million.
The company had 6.7 million members in the period, unchanged from last quarter and down 5% from a year earlier.
Subscriptions from Peloton equipment owners rose 5% to 3.11 million. Wall Street had been looking for 3.09 million users. Digital subscribers — customers who only use Peloton via a mobile or TV app — were 853,000, missing analyst predictions of 904,563.
The company’s subscription business topped income from hardware products, underscoring McCarthy’s efforts to make Peloton more of a services business.
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