Peloton Earnings: Shares Spike With Subscription Revenue Growth

After fitness equipment sales declined over the last couple of years, Peloton shifted its strategy to focus on subscriptions, creating optimism regarding the future of the company.

In the second quarter of 2023, Peloton failed to turn a profit for an eighth consecutive quarter — but there’s optimism within the market after a boost in subscription revenue.

The fitness company made more in sales through subscriptions than its fitness products for the third quarter in a row. Barry McCarthy, who was hired as the company’s CEO in February 2022, said that this could be Peloton’s “turning point” after an emphasis on new products such as the Peloton Row, Bike, and Bike+. All told, the fitness company’s second-quarter revenue beat analysts’ expectations but displayed higher losses per share than projections.

Here’s a quick breakdown of what Peloton announced:

Stocks jumped ~15% on Wednesday.
Loss per share was 98 cents versus the 64 cents expected.
Revenue hit $792.7 million versus the $710 million expected.
The net loss for the period was $335.4 million (98 cents/share).
That figure compares to a loss of $439.4 million ($1.39 per share) last year.

Fitness product sales dropped 52% year over year, which have thrived during holiday seasons in the past. But subscription revenue jumped 22% thanks to a shift in strategy implemented in March 2022, when customers could get a bike and subscription for between $60 and $100 per month vs. buying the $1,000+ product. Customers who canceled their subscriptions can return their bikes with no charge attached.

Peloton Outlook

“This is the time of year when, if we’re going to sell a lot of hardware, we have so you would expect there to be lots of hardware-related revenue, and you would expect that maybe that revenue would exceed subscription,” McCarthy told CNBC. “It didn’t. It’s why in the letter [to investors], I call it out, as it may be a turning point.”

Peloton finished Q2 with 6.7 million members.
They have 3.03 subscriptions for connected fitness products, a 10% increase from last year.

The company reported 852,000 subscribers to its app which is a 1% decrease over the year. The goal? Nab one million subscriptions to sign up for trials of its app in the upcoming year. It’ll be interesting to see play out — bikes, treads, and other machines led to losses, but they also helped build the subscription business which kept Peloton afloat.

Going forward, Peloton expects between $690-$715 million and a total gross margin of 39%. Wall Street analysts peg their revenue estimate for the quarter at $692.1 million.

“The viability of the business was very much in doubt when I walked in,” said McCarthy. “It probably wouldn’t be an overstatement to say there were some people who didn’t expect us to survive this long… the question we need to answer for investors now that we’re not talking about viability is how fast, how profitable, where’s it coming from, and over time we’ll begin to address some of those questions.”