Peloton warns 'turnarounds are hard' as losses rise

Peloton, the maker of tech-connected exercise bikes, saw its losses spiral in the first three months of the year, as the popularity it enjoyed during the pandemic faded.

Revenue dropped 24% compared to last year, driven by sinking demand for bikes and treadmills, the firm said.

The company replaced its chief executive in February and cut thousands of jobs in a bid to reboot growth.

But new boss Barry McCarthy warned investors: "Turnarounds are hard".

Losses in the quarter soared to $757m in the January to March period, up from $8.6m the same period in 2021.

The company warned investors that growth will remain difficult, forecasting revenue for the upcoming quarter between $675m and $700m - well below last year and analyst forecasts.

Shares in Peloton - which have tumbled about 60% this year already - sank more than 15% to record lows after the firm reported the results.

Mr MCarthy, who joined the company after positions at Spotify and Netflix, said he was encouraged by growth in the number of subscribers to the firm's streaming fitness classes.

The firm, which claims about 7 million members, said subscription revenue was up 55% from last year and numbers cancelling subscriptions were very low.

However, Peloton is preparing to raise prices, which may prompt more people to cancel the service.

"Early indicators are that the churn related to that will be low, but we won't know until we know," Mr McCarthy said.

'A company running out of cash'

Peloton's growth boomed during the pandemic, with revenue more than doubling during its last financial year.

But the firm had trouble meeting that demand, leading to delays for products.

As gyms reopened and exercise routines started to shift, it was also hit by a recall and other marketing hiccups, including warnings that its bikes were vulnerable to hacks.

Earlier this year Peloton scrapped plans to open its first US factory.

Executives said they were now sitting on a large inventory of unsold equipment, despite cutting prices last month.

"We believe the inventory will sell eventually so this is primarily a cash flow timing issue, not a structural issue," he said.

But Michael Hewson, chief market analyst at CMC Markets UK, said the company's huge inventory was a problem, especially since there are few signs that demand will rebound.

"This high level of inventory is a problem for a company with not much in the way of cash," he said.

Mr McCarthy said the company had taken out a $750m loan in response to its dwindling cash supply, which he described as the biggest "surprise" of the quarter.

He said he saw opportunities to expand the business outside of the US and sign up more men, noting that at the moment about 80% of its members are women.

But as the firm tries to find its footing, he said its top priority would be to stem the losses.