Peloton (PTON) Narrowing Losses and Focusing on Profitability as Sales Inch Up

Peloton (Nasdaq: PTON) announced Thursday that it is making progress toward profitability, reporting a slight sales increase for the first time in nine quarters while significantly reducing its overall losses. Shares of Peloton surged 35% following the news.

The company, under interim co-CEOs, saw a modest 0.2% growth in sales during its fiscal fourth quarter, marking the first year-over-year revenue increase since the 2021 holiday quarter. This small uptick is a positive sign for the connected fitness company as it shifts focus from growth to profitability. By making significant cuts to marketing and sales spending, Peloton reduced its quarterly losses to $30.5 million, down from $241.1 million in the same period last year.

Revenue for the quarter rose slightly to $643.6 million, up 0.2% from $642.1 million a year earlier. This increase came during a typically slower period, as the quarter extended into the summer months when people are more focused on outdoor activities and travel.

Despite a 4% decline in hardware sales, Peloton’s subscription revenue grew by 2.3%, with gross margins for this segment improving. Notably, subscription revenue from hardware purchased on the secondary market increased by 16% year over year. Treadmill sales also grew by 42% year over year, and the company’s Bike rental program saw positive momentum, clearing out excess inventory.

Peloton has struggled to generate free cash flow and cover its liabilities since the end of its pandemic boom. However, the company’s recent restructuring efforts, including a 15% reduction in its global workforce, are starting to show results. Peloton delivered positive adjusted EBITDA and free cash flow for the second consecutive quarter, with $70 million in adjusted EBITDA, exceeding analysts’ expectations. The company also generated $26 million in free cash flow, compared to negative $74 million a year ago.

As Peloton continues its search for a new CEO, interim co-CEO Karen Boone expressed confidence that the new leader will be in place by the time Peloton reports its next earnings in the fall, stating, “We are far along in the process. We’ve done a lot of vetting, a lot of conversations, and we’ve narrowed it down to some very highly qualified candidates. We have some very specific folks in mind at this point.”

Looking ahead, Peloton plans to invest in hardware and software to enhance the user experience. However, the company’s guidance indicates that these investments won’t drive subscriber growth in the current fiscal year, as the focus remains on profitability and free cash flow. Peloton reduced sales and marketing expenses by $25.5 million, or 19%, year over year, with plans for further reductions throughout fiscal 2025.

For the current quarter, Peloton expects sales to range between $560 million and $580 million, below Wall Street’s estimate of $609 million, but anticipates higher-than-expected adjusted EBITDA. For the full year, the company projects sales between $2.4 billion and $2.5 billion, compared to estimates of $2.7 billion.