Shares of Peloton Interactive Inc. were extending their plunge Tuesday after the maker of connected fitness equipment gave a downbeat forecast, indicating continued demand trouble for the onetime pandemic star.
expects June-quarter revenue of $675 million to $700 million, far below the FactSet consensus, which was for $820 million. The company noted that it was experiencing “softer demand” that was only partly offset by recent price cuts on its hardware.
Shares were down 12% in Tuesday trading, and on track for a record-low close. They’re off 86% on a 12-month basis, compared with a 16% decline in the S&P 500 index.
The company’s latest report indicated $1.41 billion in inventory on Peloton’s balance sheet. While Peloton anticipates that it ultimately will be able to sell its excess inventory, its newly installed chief executive Barry McCarthy admitted that inventory management has been a “challenge” for the balance sheet.
“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,” he wrote in a letter to shareholders.
Peloton disclosed that it inked a commitment earlier this week to borrow $750 million in five-year term debt from J.P. Morgan Chase & Co.
and Goldman Sachs Group Inc.
Additionally, the company anticipates that its “current cash flow headwind should become a tailwind in FY23,” as the company works down its inventory glut, and Peloton expects to “restore the business to positive free cash flow in FY23,” per McCarthy’s shareholder letter.
He added that recent price changes seem to be paying off.
“The price cuts on hardware have increased our daily unit sales by 69% and increased our revenue by more than $25 million per month,” he wrote. “And the price increase on our All-Access monthly subscription, which isn’t effective until June 1, has so far driven only a modest increase in churn. That’s a roughly $14 million increase in revenue monthly if churn remains near current levels.”
The commentary came on the heels of lower-than-anticipated financial results for Peloton’s March quarter. The company posted a $2.27 net loss per share on revenue of $964.3 million, while analysts had been modeling an 83-cent loss per share and $970 million in revenue.
Peloton finished its fiscal third quarter with 2.96 million connected fitness subscriptions, ahead of the FactSet consensus, which was for 2.93 million.
“Apart from upside to subscribers, there are very few things to cheer about in today’s press release,” MKM Partners analyst Rohit Kulkarni wrote in a note to clients. “Given its level of cash, inventory, and cash burn, we view existential threats on Peloton as rising, particularly amidst an environment with reopening headwinds, rising interest rates, rising commodity prices (inflation), and, possibly, softer consumer discretionary spend patterns as we head into 2H22.”