Peloton Triggers Biggest Rally Ever With Signs of Turnaround

(Bloomberg) -- Peloton Interactive Inc. shares surged the most ever after the fitness company reported earnings that beat analysts’ estimates, signaling that turnaround efforts are starting to bear fruit. 

Peloton managed to eke out revenue growth in the three months ended June 30, with sales of $644 million, according to a statement Thursday. That was up less than 1% from a year earlier, but easily beat the average Wall Street estimate of $630.1 million. 

The New York-based company said it is “especially proud” of its moves toward profitability. Adjusted earnings before interest, taxes, depreciation and amortization was $70.3 million last quarter, compared with a loss of $34.7 million on that basis a year earlier. Analysts had estimated $53.2 million. 

“We’ll continue to optimize expenses,” the company said in a letter to shareholders. “Our improvement in profitability reflects our continued focus on aligning our costs with the size of our business.”

The shares surged 35% to $4.55 in New York, marking the biggest single-day gain since the company had its initial public offering in 2019. The stock had been down 45% this year before the rally.

The positive quarter shows the headway the company has made in cutting costs and reducing losses, though the outlook for growth in the current period suggests the road to recovery will not be easy. The report is the first since Barry McCarthy stepped down as chief executive officer after struggling to turn around the onetime highflier. Board Chair Karen Boone and director Chris Bruzzo have been serving as interim co-CEOs while Peloton seeks a new leader. 

Revenue will be $560 million to $580 million in the fiscal first quarter, which runs through September. The midpoint of that range would be down 4% from a year earlier and well below the $602.5 million that analysts had projected. 

Peloton said it generated $15 million in cost savings during the fourth quarter and $26 million in free cash flow. Revenue from hardware products, such as its bikes and treadmills, declined 4%. Sales from app subscriptions, meanwhile, climbed 2%. Its net loss was $30.5 million, versus a deficit of $241.8 million a year earlier.

In the current quarter, the company predicted a 3% decline in subscribers using Peloton hardware and a 26% drop in paid app users. Peloton said its outlook was “tempered by uncertainty” related to its ability to keep adding subscribers. It also pointed to the broader economy as a potential headwind.

When McCarthy announced plans to step down in May, the company embarked on a major restructuring that included slashing its workforce by 15%.

“The search for Peloton’s next CEO is top of mind for all stakeholders,” it said Thursday. “The process is well underway and we look forward to sharing more when we have an announcement.”

(Updates shares starting in first paragraph.)

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