Parsing Peloton after earnings

CNBC’s Kristina Partsinevelos joins FM to report on Peloton’s earnings report. With CNBC’s Melissa Lee and the Fast Money traders, Guy Adami, Tim Seymour, Pete Najarian and Steve Grasso. For access to live and exclusive video from CNBC subscribe to CNBC PRO: https://cnb.cx/2NGeIvi

Peloton shares tumbled more than 25% on Thursday, after the company reported weakening sales growth and a wider-than-expected loss in its fiscal first quarter.

The company slashed its outlook for the full fiscal year amid softened demand for its exercise equipment and ongoing supply chain challenges. More consumers are opting to return to gyms such as Planet Fitness and Equinox, or fitness junkies are purchasing another at-home option from the flurry of companies that sell everything from rowing machines to connected mirrors.

“We anticipated fiscal 2022 would be a very challenging year to forecast, given unusual year-ago comparisons, demand uncertainty amidst re-opening economies, and widely-reported supply chain constraints and commodity cost pressures,” Chief Executive Officer John Foley said in a letter to shareholders.

A slower-than-expected start to the second quarter and “challenged visibility” in the near term led the company to lower its expectations, Foley said.

Here’s how Peloton did in its fiscal first quarter compared with what analysts polled by Refinitiv were expecting:

Loss per share: $1.25 vs. $1.07 expected
Revenue: $805.2 million vs. $810.7 million expected
For the three-month period ended Sept. 30, Peloton reported a net loss of $376 million, or $1.25 per share, compared with net income of $69.3 million, or earnings of 20 cents a share, a year earlier. Analysts had been looking for Peloton to post a loss of $1.07 per share.

Revenue grew 6% to $805.2 million from $757.9 million a year earlier, missing estimates for $810.7 million.

That marked a significant slowdown from the 250% sales surge that Peloton booked in the first quarter of 2020, when consumers were eager to get their hands on at-home bikes to workout when gyms were closed.

Sales of connected fitness products, including its Bikes and Treads, fell 17% to $501 million. Subscription revenue grew 94% to $304.1 million. Connected fitness sales accounted for 62% of Peloton’s business in the quarter.

Peloton counted 2.49 million connected fitness subscribers at the end of the three-month period, up 87% year over year. Connected fitness subscribers are people who own a Peloton product and also pay a monthly fee to access the company’s digital workout content.

Its entire member base, which includes digital-only subscribers, totaled 6.2 million.

Average net monthly connected fitness churn, which Peloton uses to measure retention of connected fitness subscribers, ticked up to 0.82% from 0.73% in the prior quarter.

Connected fitness subscribers completed 16.6 workouts per month, on average, a drop from 20.7 workouts a year earlier.

Price cut to Bike disappoints

Sales and marketing expenses surged 148% to $284.3 million, representing roughly 35% of revenue.

The company has poured dollars into advertising its now less-expensive Bike product and Tread treadmill machine. The latter was just recently put back on sale in the U.S. following a widespread recall.

In August, Peloton slashed the price of its original Bike by 20% to $1,495. On Thursday, Chief Financial Officer Jill Woodworth said that while Bike sales accelerated after the change, the results haven’t entirely met Peloton’s expectations.

“While the price drop led to conversion rates that exceeded our forecast, overall traffic has not met our initial expectation,” Woodworth told analysts on an earnings call. “We’ve also seen a richer than anticipated mix of Bike sales versus Bike+, further impacting both revenue and our growth margin expectation.”

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