Peloton posted fiscal third-quarter results Thursday that beat Wall Street expectations on revenue and revealed a narrow profit for the first three months of the year. The company touted better-than-expected equipment sales and subscription revenue as helping to drive its sales and profitability, with free cash flow up nearly 60%.
Shares of Peloton closed the day roughly 8% higher after being as high as 13% following the report. "The first order of business in earnings is reporting how you did financially, and we feel like that was a pretty good quarter in terms of where we are strategically," CEO Peter Stern told CNBC.
For the quarter ended March 31, Peloton reported earnings per share of 6 cents, which was slightly below the consensus analyst estimate of 7 cents, according to a survey of analysts by LSEG. However, the company's revenue for the quarter reached $630.9 million, exceeding the Wall Street expectation of $617.6 million and marking a modest increase of about 1% from the $624 million reported in the same quarter a year prior.
The company's net income for the quarter was $26.4 million, or 6 cents per share, a substantial improvement from the $47.7 million net loss, or 12 cents per share, recorded in the year-ago period. This shift to profitability underscores the impact of the company's strategic adjustments.
Peloton has revised its full fiscal year revenue projection, now anticipating total revenue to fall between $2.42 billion and $2.44 billion. This updated guidance lifts the lower end of the range previously provided by the company last quarter, indicating a more optimistic outlook for the remainder of the fiscal year.
Revenue generated from connected fitness subscriptions amounted to $202.9 million, a slight decrease from $205.5 million in the prior year, but still surpassing analyst estimates of $196 million, according to StreetAccount. Overall subscription revenue demonstrated growth, increasing by 2% year over year to reach $428 million, also topping estimates.
Despite the positive revenue trends in subscriptions, the number of paid connected fitness subscribers experienced a year-over-year decline, settling at 2.66 million. "Some of the vectors that are at play this quarter, and will be in the future, are selling additional equipment to our existing members," Stern said on a call with analysts. "That doesn't generate more subscriptions, but it does generate revenue."
The connected fitness company has been navigating a challenging market characterized by weak performance and sluggish sales, previously projecting that performance to extend into this quarter. In response, the company has undertaken a revamp of its product offerings and implemented price increases on both its equipment and subscription plans. Stern said Peloton feels its pricing changes were appropriate.
"We're really sensitive to the fact that people feel stress in this economic environment, and it's impacting different people in really different ways," Stern told CNBC. "That being said, we feel like the price changes that we made in Q2 – it was time. We had added a tremendous amount of value over the succeeding three or four years since we previously made any change in our subscription prices."
In addition to internal strategies, Peloton has been pursuing new partnerships to re-engage customers. Last month, Peloton announced a deal with Spotify, making over 1,400 Peloton classes available to Spotify Premium subscribers. The company also launched its first Bike and Tread products designed for high-traffic gym environments in March.
Stern added that the company had already factored the Spotify deal into its revenue guidance because it had been in the works for "a long time." He also clarified that users acquired through the Spotify partnership are not counted among Peloton's own subscribers. "We're really excited about our deal with Spotify, that allows us to reach Peloton members in a lot more countries and is also a high-margin revenue [stream] for us," Stern said.
Furthermore, on a call with analysts on Thursday, Stern said Peloton now expects tariffs to represent roughly $30 million of free cash flow exposure for the full year, a reduction from the previous forecast of $45 million. "I was very pleased that we were able to deliver a Q3 with positive revenue growth, and while we won't see that likely sustain in Q4 based on our implied guidance for the quarter, I think we're now in a stage where hopefully we'll see some steps forward and some steps back as we right the ship," Stern said.
