Peloton stock (NASDAQ:PTON) experienced a significant drop of over 21% in early trading on Wednesday, reaching an all-time low. This decline comes in the wake of the connected fitness bike manufacturer’s announcement that it faced challenges in subscriber growth and encountered unexpectedly high costs linked to a seat recall.
In a shareholder letter released on Wednesday, Peloton addressed the slowdown in growth, attributing it partially to the seat post-recall declared on May 11th. This recall affected the availability of seat posts for both first-party and third-party sales of the original Peloton Bike, causing supply constraints.
The financial burden of the seat recall surpassed the company’s initial projections. Consequently, Peloton recorded an additional accrual of $40 million for the current quarter. This accrual accounts for actual expenses incurred during the recall and expected costs related to future recall-related activities.
During the quarter, subscribers temporarily suspended their monthly subscriptions while awaiting replacement seat posts. This pause resulted in a decrease of 29,000 subscribers compared to the previous quarter. However, when considering the year-over-year perspective, subscriptions displayed a 4% increase.
Peloton’s fiscal fourth-quarter revenue reached $642.1 million, reflecting a 5.4% decline from the corresponding period last year. Despite this decrease, the figure surpassed Wall Street expectations of $641.6 million.
Looking ahead, Peloton’s projection for first-quarter revenue ranges from $580 million to $600 million. This forecast, however, falls short of the consensus among analysts, who anticipated revenue to reach $647.8 million.
Since the beginning of the year, Peloton shares have endured a decline of approximately 30%. Notably, the company achieved positive free cash flow for the second time during the most recent quarter. However, this trend is not expected to continue over the next two quarters, with Peloton estimating a return to positive free cash flow in the latter half of its fiscal year 2024.
Peloton has been grappling with a turnaround strategy following the stock’s decline from its previous pandemic-induced highs. Factors such as supply chain disruptions and safety-related incidents that led to recalls have impacted the company’s performance. Furthermore, the reopening of economies post-pandemic, coupled with increasing interest rates, has posed challenges for high-growth companies like Peloton.
In an effort to address these challenges, Peloton appointed tech industry veteran Barry McCarthy to lead the struggling equipment manufacturing company. McCarthy expressed optimism about the company’s future trajectory and the effectiveness of the changes being implemented.
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Author Faith Yakubu 
