On Thursday, shares of Peloton Interactive experienced an impressive surge during midday trading, with the stock soaring by 33% following the company’s surprising announcement of an increase in its fiscal fourth-quarter revenue. The fitness technology firm revealed that its revenue rose to $643.6 million for the three months leading up to June 30, compared to $642.1 million from the same period last year, exceeding analysts’ expectations which had set the average estimate at $627.4 million according to Capital IQ.
In breaking down revenue components, subscription revenue saw a modest gain of 2%, reaching $431.4 million, while sales from connected fitness products, however, experienced a slight decline of 4% to $212.1 million. In terms of profitability, Peloton's per-share net loss diminished notably to $0.08, down from a significantly larger loss of $0.68 year over year, which was better than analysts' projected GAAP loss of $0.18.
During an earnings call, Chief Financial Officer Liz Coddington highlighted the company's performance in the fourth quarter as indicative of its steadfast leadership in the connected fitness sector and pointed to the robustness of its subscription model. She remarked, "Overall, our (fourth-quarter) performance reflects our continued leadership in the connected fitness category and the strength of our subscription business as well as the tremendous progress we have made in rearchitecting our cost structure," as cited from a transcript by Capital IQ.
Looking ahead, Peloton is on plans to generate $200 million in run-rate cost savings by the conclusion of fiscal 2025. This financial foresight aligns with the company’s restructuring efforts, which involves a strategy to reduce costs while aiming to enhance overall margins. Coddington additionally mentioned that the company is currently in the process of narrowing down candidates for the chief executive position, although no timeline has been established for appointing a new CEO, according to interim co-CEO Karen Boone.
For the upcoming fiscal year 2025, Peloton has provided guidance indicating that revenue is expected to fall within the range of $2.4 billion to $2.5 billion, which represents a projected 9% decline at the midpoint when compared to the previous fiscal year. Market analysts predict revenue of approximately $2.68 billion for the ongoing year.
Notably, the company anticipates that hardware sales will continue to decrease year-over-year, with expectations of a slight uptick in average monthly paid connected fitness churns. Despite the forecasted slower sales, Peloton forecasts a significant expansion of gross margins, projecting an increase of 432 basis points year-over-year as a result of the company's ongoing cost streamlining initiatives.
In the near-term, for the first quarter, revenue is projected to be between $560 million and $580 million, reflecting a 4% decline year-over-year at the midpoint of this range. Recent insights from four analysts surveyed by Capital IQ suggest a slightly higher revenue expectation for this quarter of $580.2 million.
Coddington further elaborated on the market trends, noting, "From a market perspective, the first quarter is typically a seasonally low quarter for hardware sales as consumers shift their discretionary spending toward categories like travel and sporting goods during the summer months." She also addressed additional sales challenges arising from the uncertain macroeconomic landscape.
In summary, Peloton’s latest earnings report has yielded a positive market reaction, showcasing resilience and future growth potential amidst economic challenges and shifting consumer behaviors. Price: 4.30, Change: +0.94, Percent Change: +27.98.