Peloton losses widen as CEO warns company is ‘thinly capitalised’

Peloton shares hit new lows on Tuesday, after the connected fitness company reported far higher quarterly losses than expected and warned it was “thinly capitalised” for a business of its scale.

The New York-based maker of exercise bikes and treadmills reported a net loss of $757mn for its fiscal third quarter — almost triple the $267mn loss analysts had expected. Peloton now expects fourth-quarter revenue of between $675mn and $700mn, below analysts’ consensus forecasts of $820mn.

Peloton shares fell by as much as 20 per cent to $11.35 in early trading, more than 90 per cent below the peak they reached in late 2020 when Wall Street was betting that the company would be a lasting beneficiary of pandemic-induced changes to consumers’ fitness regimes.

As the easing of Covid-related lockdowns has encouraged more people to return to gyms and fitness studios, Peloton has struggled to maintain its equipment sales, which account for about 60 per cent of revenues.

“We finished the quarter with $879mn in unrestricted cash and cash equivalents, which leaves us thinly capitalised for a business of our scale,” said Barry McCarthy, chief executive, who succeeded co-founder John Foley as chief executive in February.

Peloton was rethinking its capital structure after being left holding a large inventory of unsold equipment, McCarthy said, leading it to burn through cash. He disclosed that the company had signed a binding commitment with Morgan Stanley and Goldman Sachs to borrow $750mn to strengthen its balance sheet.

McCarthy said the group’s new goal was to become “a global connected fitness platform” with 100mn members, describing its digital app — rather than its bikes — as being critical to signing up a customer base equivalent to over half of the world’s current gym memberships.

McCarthy, a former Spotify and Netflix executive, has shrugged off calls from some investors to sell part of the company, saying that such a move was not part of his plans.

Activist investor Blackwells Capital, which has a stake of almost 5 per cent, has accused McCarthy of failing to reform the connected-fitness company’s governance. Earlier this month, the Wall Street Journal reported that Peloton was exploring the possibility of selling a minority stake, which the company did not confirm.

Peloton’s stock jumped in the first year of the pandemic and then fell back as gyms reopened and investors curtailed their growth expectations, prompting the company to cut 2,800 jobs and abandon plans to open a $400mn factory in Ohio.

The group was valued at $8.1bn when it went public in September 2019 and saw its market capitalisation hit almost $50bn in late-2020 before sinking below $4bn on Tuesday. The share price slide is a blow to directors such as Foley, and to newer investors including MSD Partners, which manages investments for Dell Technologies founder Michael Dell and others.

McCarthy said the group would broaden its distribution via third-party retailers, expand in international markets and roll out an equipment rental programme with a subscription service.

For the third quarter, Peloton said lower than expected equipment sales dragged its revenues down from $1.26bn to $964mn, missing analysts’ expectations of $973mn.

Subscription revenues for the quarter rose 55 per cent year on year to $370mn. Peloton said it expected to receive a boost in subscription revenue in its next fiscal year when it increases the price of its digital memberships, although it acknowledged that this may result in some cancellations.