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Peloton stock plunges after the company slashes its forecast by $1 billion

November 4, 2021, 9:14 PM UTC

Peloton Interactive Inc. cut its annual revenue forecast by as much as $1 billion and lowered its projections for subscribers and profit margins, underscoring its struggles to adjust to a post-pandemic economy. 

The fitness company—best known for its exercise bikes and remote classes—now expects sales of $4.4 billion to $4.8 billion in fiscal 2022, which ends next June. Less than three months ago, it had been predicting revenue of $5.4 billion. 

The grim outlook sent the stock tumbling as much as 26% to $64 in late trading. Even before the swoon, Peloton shares were down 43% this year. 

Peloton was a pandemic phenomenon, with customers flocking to home-exercise services during lockdowns. Now people are heading back to the office, school and gyms, sapping demand for the company’s equipment. Supply-chain constraints, as well as the soaring costs of commodities and freight, also are weighing on Peloton. 

“We anticipated fiscal 2022 would be a very challenging year to forecast,” management said in a letter to shareholders Thursday. “We will be taking concrete steps to reexamine our expense base and adjust our operating costs to better align our investments with our revised growth expectations.”

At best, Peloton currently expects to have 3.45 million connected fitness subscriptions by the end of the year. It had previously called for 3.63 million. And gross profit margin will be 32%, compared with an earlier forecast of 34%. All that will add up to a loss of as much as $475 million, excluding some items.

The company cut the price of its original bike by $400 in August, and that too has hurt profitability — especially since more shoppers than expected opted for that model over other products. 

“A softer-than-anticipated start” to the second fiscal quarter contributed to the company’s decision to rethink its forecast, according to the letter. But Peloton added that its “confidence in and commitment to our strategy is unchanged.”

Efforts to rein in costs probably won’t begin to show up for a quarter or two, the New York-based company said. Peloton expects to be profitable—before interest, taxes, depreciation and amortization—by fiscal 2023. 

Revenue rose 6% to $805.2 million last quarter. That was just above Peloton’s $800 million forecast, but below the roughly $809 million anticipated. The company posted a net loss of $1.25 a share.

The slim growth came from a 94% increase in revenue from subscriptions, which totaled $304.1 million. Hardware sales fell 17% to $501 million in the first quarter.

Peloton expects to report between $1.1 billion and $1.2 billion in revenue for in the second fiscal quarter, which ends in December. That would miss Wall Street estimates of $1.5 billion. It’s projecting 2.8 million to 2.85 million in total fitness subscribers by the end of the period. 

As people continue to return to the office, the average number of monthly workouts fell to 16.6 per subscription from 20.7 a year earlier. In-person gyms, meanwhile, are seeing their fortunes recover. Planet Fitness Inc. jumped to a record high on Thursday after delivering a better-than-anticipated forecast.

Pelton also is trying to shed its upscale image, which may put off many middle-class consumers. 

“There remains a lingering perception that Peloton is a luxury item,” the company said. “We intend to amplify the platform’s value proposition via increased marketing ahead of and during our key seasonal selling period.”

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