Peloton squeezes higher despite earnings miss; Tabs former Apple exec as CEO
2min read Peloton (PTON) reported its Q3 earnings with revenue of $586 million, beating the consensus of $573 million, though EPS came in at a loss of 17 cents per share, two cents below estimates. Key metrics included connected fitness revenue, which was down 12% year-over-year at $159.6 million, and subscription revenue, which grew 2.7% to $426.3 million, indicating a shift toward recurring revenue. Adjusted EBITDA was a standout, reaching $115.8 million, significantly above the estimated $56.6 million, showing improved operating efficiency and effective cost management.
The company provided guidance for fiscal Q2, with revenue expected to fall between $640 million and $660 million, just shy of the analyst consensus of $663 million, and adjusted EBITDA of $20 million to $30 million, beating the previous estimate of $17.6 million. For fiscal 2025, Peloton raised its adjusted EBITDA guidance to a range of $240 million to $290 million, up from prior guidance of $200 million to $250 million, reflecting confidence in its cost-saving initiatives and operational improvements.
On the leadership front, Peloton announced that Peter Stern, co-founder of Apple Fitness+ and current Ford executive, will take over as CEO and president effective January 1, 2025. Stern’s background in hardware, software, and subscription services aligns well with Peloton’s strategic goals of expanding its content and subscription-based revenue streams. Stern’s appointment is expected to drive Peloton's growth through his experience with services like Apple TV+, iCloud, and Apple Fitness+.
Peloton's stock surged 24%, reaching its highest level since August 2023, fueled by the float of 328 million shares and a short interest of 18%, making it susceptible to a short squeeze. The stock's performance highlights investor optimism surrounding Stern’s appointment and the raised guidance, though valuation remains a concern for analysts given Peloton’s significant run-up and ongoing revenue challenges.
Segment-wise, connected fitness saw a 12% revenue drop as demand for hardware continues to decline, while paid digital subscriptions decreased 24% year-over-year. However, the connected fitness subscription base remains stable at 2.9 million, demonstrating Peloton’s shift toward a more profitable, service-focused model, which management highlighted as central to their long-term strategy.
In preparation for the holiday season, Peloton’s CFO noted an increase in media spending to capitalize on consumer interest, which could help boost hardware sales in the upcoming quarters. Additionally, management affirmed that they are on track to achieve over $200 million in cost savings by the end of fiscal 2025, aiming to improve profitability and maintain financial stability.
Looking ahead, Peloton’s forecasted decline in full-year revenue reflects anticipated headwinds in hardware sales, but the company’s commitment to a leaner, more subscription-oriented business model has been well-received. While valuation concerns linger, the focus on recurring revenue, cost control, and leadership transition leaves Peloton positioned for potential growth, though investor caution is advised given the high expectations and market volatility.
