Peloton shares drop as pandemic-related uncertainty weighs on outlook

Peloton is forecasting full-year revenue between $4.4 and $4.8B and connected fitness subscriptions between 3.35M and 3.45M

Shares of Peloton have plunged as much as 32% in premarket trading after the fitness equipment giant cut its full-year 2022 guidance due to a "softer than anticipated" start to the second quarter and "challenged visibility" in its near-term operating performance as a result of uncertainty related to the COVID-19 pandemic. 

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Looking ahead, Peloton is forecasting $4.4 billion to $4.8 billion in total revenue for fiscal year 2022, down from previous guidance of $5.4 billion. The company anticipates Connected Fitness subscriptions will grow to somewhere between 3.35 million and 3.45 million for the full year.

"The primary drivers of our reduced forecast are a more pronounced tapering of demand related to the ongoing opening of the economy, and a richer than anticipated mix of sales to original bike," Peloton said in a letter to shareholders

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PTON PELOTON INTERACTIVE, INC. 46.41 +2.49 +5.67%

While Peloton expects a "healthy" holiday selling season as its inventories and order delivery windows have returned to pre-pandemic levels, chief financial officer Jill Woodworth acknowledged on the company's first quarter earnings call that it is "clear that we underestimated the reopening impact on our company and the overall industry." 

"As we prepared our previous guidance, we had to make assumptions about consumer behavior coming out of COVID, the impact of our original Bike price reduction and the cost structure within our Connected Fitness segment, all against the backdrop of a global supply-chain crisis," Peloton CEO John Foley explained. 

"While we have had to manage carefully around many issues such as component shortages, elevated freight costs and increased transportation costs, I’m proud of our team who has moved mountains to ensure that we have ample inventory across our portfolio ahead of the holiday season."

In conjunction with the updated outlook, Peloton will take steps to reexamine its expense base and adjust its operating costs to better align investments with its new growth expectations.

"We are taking significant corrective actions to improve our profitability outlook, which will impact the back half of fiscal year 2022 and into fiscal year 2023," Foley added. 

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The fitness equipment giant reported a loss of $376 million, or $1.25 per diluted share, compared to a profit of $69.3 million during the same period last year. Revenue for the quarter rose 6% year over year to $805.2 million, marking a slowdown from the 250% surge in revenue in the first quarter of 2020. 

Peloton's Connected Fitness segment reported $501 million in revenue, down 17% year over year and approximately 62% of total revenue for the quarter. The decline was primarily due to fewer Bike portfolio deliveries compared to the year ago period, as well as the impact of the original Bike's price reduction to $1,495 in August. 

Subscription revenue grew to $304.1 million, representing 94% year over year growth and 38% of total revenue. Connected Fitness subscriptions grew 87% year over year to 2.49 million, driven by strong consumer demand and a sustained average net monthly churn level of 0.82%. The growth was partially offset by the continued impact of its Tread product recalls. Meanwhile, digital subscriptions grew 74% year over year to 887,000, bringing Peloton's total member base to 6.2 million.  

Connected Fitness subscribers worked out 120.5 million times during the first quarter, up 55% from 77.8 million workouts in the same period last year. Total platform workouts, including connected fitness and digital, grew to approximately 138 million, up from 91 million a year ago.