Peloton Gets Destroyed

Peloton Interactive Inc. (NASDAQ: PTON) CEO Barry McCarthy, who has been in his job for two years, must be replaced. The turnaround he was hired to engineer never happened. The company released mediocre earnings, and its forecast for the upcoming months was worse. The stock dropped more than 20% on the news and reached an all-time low.

The Problem With Peloton

Running uphill

Peloton’s greatest problem began as people who bought its equipment during the COVID-19 pandemic returned to gyms. Home exercise was no longer a safety measure for many people, so sales fell. McCarthy began new sales channels. These included Dick’s Sporting Goods and Amazon. It was an error. The decisions only made it easier for potential buyers to look at less expensive products side by side. Peloton also began to offer used models of its products, which likely cannibalized sales of its new equipment. (Here is the most popular exercise fad each year since 1956.)

In the most recent quarter, Peloton’s revenue fell from $793 million to $744 million. The company’s loss was $195 million, compared to $335 million in the year before. The shock in McCarthy’s letter to shareholders was this: “Based on our updated forecast, we now expect the business to generate positive free cash flow in Q4 (vs. $(74) million in 4Q23) but to fall short of achieving our goal for the full year.” Improvement in revenue was put off again. Chief Financial Officer Liz Coddington commented, “Our outlook is tempered by uncertainty surrounding our ability to efficiently grow Paid App subscribers and the performance of other new initiatives, as well as an uncertain macroeconomic outlook.”

For the fiscal year, which includes the just announced quarter, Peloton said it expects revenue of $2.68 billion to $2.75 billion, down from prior guidance of up to $2.80 billion. The forecast represents the first time McCarthy has been pessimistic since he joined the company. McCarthy cannot be optimistic because all his work, which includes hardware, software, and subscriptions, has failed to make a dent in results. Actually, he has made them worse.