Peloton (NASDAQ:PTON)
Earnings for the fourth quarter of the fiscal year 2022 were released by Peloton (NASDAQ:PTON) on Thursday, August 25, before the markets opened. Investors were let down by the maker of interactive fitness equipment, and the stock dropped by 18% the day the news was released.
Since Peloton (NASDAQ:PTON) sales spiked during the pandemic’s lockdown period, the company overinvested in expansion. As soon as gyms were allowed to reopen, sales began to decline. Due to a lack of forethought, the company now has more inventory and manufacturing capacity than it can reasonably use to run its day-to-day operations.
The bottom line loss for Peloton has roughly quadrupled.
Peloton (NASDAQ:PTON) reported $679M in revenue for the quarter ending June 30. That is 30% lower than the $964 million it posted during the same quarter a year ago. This is a massive setback for a business experiencing year-on-year sales increases of over 100% before the spread of COVID-19.
Having gyms be locked down by the government would seem like good news for Peloton, and maybe it is. The extent of the pandemic’s devastation becomes apparent upon closer inspection. Peloton’s bottom line loss in the most recent quarter was $1.2 billion, nearly four times as much as the loss of $313 million in the same period a year ago.
Sales skyrocketed at the start of the epidemic, and the manufacturer quickly ran out of inventory. With this trend in mind, the previous administration made substantial investments in expanding production capabilities. When those investments started paying off, governments had loosened restrictions on gym reopenings, and interest in home gyms had fallen precipitously.
Because of this, Peloton (NASDAQ:PTON) has gone from being a thriving firm with annual revenue growth of over 100% and widening profit margins to one that is desperately trying to stem the tide. To right-size the business after the overinvestments, the new management team led by newly appointed CEO Barry McCarthy has implemented several rounds of layoffs, divested from in-house manufacturing, taken on hundreds of millions in debt, and signed an unprecedented distribution deal with Amazon (NASDAQ: AMZN).
According to Peloton (NASDAQ:PTON), the results are beginning to show: “Over the preceding six quarters leading up to Q4 2022, we posted an average quarterly negative free cash flow of about $650 million. The fourth quarter saw us bring that outflow down to $412 million.” Nonetheless, a quarterly loss of $400 million isn’t exactly going to pique investors’ interest.
Peloton is pleading with investors for time.
The new CEO of Peloton (NASDAQ:PTON) likened the challenge of turning the company around to changing the course of a giant ship. The market was anticipating quicker and more substantial effects from these modifications. Instead, Peloton asked shareholders for patience in its fourth-quarter shareholder letter while it worked to address the overinvestments of the previous management team.
Almost 18% of the company’s stock value was wiped off on the day of the announcement, as was to be expected. Significant price changes like those we’ve seen at Peloton (NASDAQ:PTON) are unusual for a company of its size. It’s easy to see why people on August 25 were so excited about Peloton stock.
Featured Image : Megapixl © Mohammedsoliman4
Author Shariq Khan 
