Peloton stock plunge continues after earnings bring ‘very few things to cheer about’


The shares of Peloton Interactive Inc. they were widening their drop on Tuesday after the connected fitness equipment maker gave a negative forecast, indicating continued demand problems for the former pandemic star.

PTON Platoon,
-15.64%
expects June quarter revenue of $ 675 million to $ 700 million, well below the $ 820 million FactSet consensus. The company noted that it was experiencing “softer demand” which was only partially offset by recent hardware price cuts.

Shares fell 12% in trading on Tuesday and are on track for a record low close. They are down 86% in 12 months, compared to a 16% drop in the S&P 500 index. SPX,
-0.24%

The company’s latest report indicated $ 1.4 billion in inventory on Peloton’s balance sheet. While Peloton anticipates that it will eventually be able to sell its excess inventory, its new chief executive, Barry McCarthy, admitted that managing inventory has been a “challenge” for the balance sheet.

“We have too much for the current operating rate of the business, and this inventory has consumed a huge amount of cash, more than we expected, which has led us to rethink our capital structure,” he wrote in a letter to shareholders. .

Peloton revealed that he pledged earlier this week to borrow $ 750 million in five-year debt from JP Morgan Chase & Co. JPM.
-2.21%
and Goldman Sachs Group Inc. GS,
-1.36%

In addition, the company anticipates that its “wind against the current cash flow should become a wind against fiscal year 23,” as the company reduces its excess inventory, and Peloton expects to “restore business to a positive free cash flow in fiscal year 23,” according to McCarthy’s shareholders’ letter. .

He added that recent price changes seem to be bearing fruit.

“Hardware price cuts have increased our daily unit sales by 69% and increased our revenue by more than $ 25 million a month,” he wrote. “And the increase in the price of our monthly total access subscription, which is not effective until June 1, has so far only led to a modest increase in turnover. This represents an increase in revenue. about $ 14 million a month if the turnover stays close to current levels. “

The comment came after lower-than-expected financial results for Peloton’s March quarter. The company reported a net loss of $ 2.27 per share with revenue of $ 964.3 million, while analysts had been modeling a loss of 83 cents per share and $ 970 million in revenue.

Peloton ended its third fiscal quarter with 2.96 million connected fitness subscriptions, ahead of the FactSet consensus of 2.93 million.

“Aside from the benefit to subscribers, there is very little to cheer on in today’s press release,” MKM Partners analyst Rohit Kulkarni wrote in a note to clients. “Given its level of cash, inventory and cash consumption, we believe that existential threats to Peloton are increasing, especially in an environment with a reopening of headwinds, rising interest rates, rising raw materials (inflation) and possibly softer consumer discretionary spending patterns. as we head to 2H22 “.



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