Peloton Gives Upbeat Forecast But Dish Settlement Pressures Cash

Peloton Interactive Inc. gave an upbeat quarterly revenue forecast, signaling that a turnaround plan under Chief Executive Officer Barry McCarthy is making headway despite the sluggish economy.

(Bloomberg) — Peloton Interactive Inc. gave an upbeat quarterly revenue forecast, signaling that a turnaround plan under Chief Executive Officer Barry McCarthy is making headway despite the sluggish economy. 

But a $75 million patent settlement with Dish Network Corp. over content-streaming technology cast a shadow over otherwise positive results. The cost of the settlement will put significant pressure on free cash flow in the fourth quarter, 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 initially rose about 8% in premarket trading before giving up those gains to fall 3.5%.

With the Dish settlement out of the way, McCarthy said the company can focus on growing the business. Sales will be $630 million to $650 million in the fiscal fourth quarter, outpacing the $614.4 million predicted by analysts.

The outlook helps renew optimism about a company that has struggled since an early-pandemic surge. Peloton’s 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 previously 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.”

Sales in the third quarter were also better than expected. Revenue fell 22% to $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 6.7 million members last quarter.

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.

Peloton said it will relaunch its brand later this month, including re-introducing 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. Despite the relaunch, the fiscal fourth quarter will be “among our most challenging from a growth perspective,” McCarthy said.

 

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