Peloton beats fiscal Q4 revenue guidance as EBITDA rises

Peloton Interactive (PTON 35.42%)the connected fitness specialist, released its fiscal fourth quarter 2024 report on August 22. The results showed a combination of notable improvements in profitability and challenges in growing revenue and subscriptions.

For the period ended June 30, Peloton reported total revenue of $643.6 million, marginally beating management’s guidance range of $618 million to $643 million. However, this was barely better than flat year-over-year. The company also achieved free cash flow of $26 million and saw its adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) rise to $70 million, well above management’s guidance for a loss of 5 to 20 million dollars. Overall, the quarter highlighted the company’s progress in profitability, although revenue growth remains a concern.

Source: Management guidance from the fiscal third quarter 2024 earnings report, released on May 2.

Understanding Peloton

A pioneer in the connected fitness space, Peloton Interactive offers a range of fitness products and subscription services that offer live and on-demand classes. The company has built a loyal member base who access its extensive library of fitness content through various modalities, including cycling, running and strength training. At the end of its fiscal fourth quarter, Peloton boasted 6.4 million members.

Recently, Peloton has focused on innovation and diversification to maintain its competitive edge. It has focused on treadmill programming, and this quarter saw a 42% increase in connected fitness revenue from its treadmill products. In addition, it has launched a Bike+ rental program in the UK, part of its ongoing effort to attract and retain customers through new and improved offers.

Quarterly highlights

Peloton’s fiscal performance in the fourth quarter was mixed. Financially, the company achieved positive free cash flow of $26 million, in line with management’s expectations. Adjusted EBITDA was $70 million, significantly exceeding the anticipated range. Additionally, net cash from operating activities improved to $32.7 million, compared to a loss of $55.4 million in the prior-year period.

However, the largely flat income indicator was a point of concern. Subscription revenue rose 2% to $431.4 million. However, the total number of paid connected fitness subscriptions closed fell 1%, in line with management guidance. Paid app subscriptions also fell 26% year-on-year, reflecting broader challenges in supporting digital app penetration.

The company continued to enhance member experiences through strategic partnerships. His collaboration with Alphabethis (GOOG -1.28%) (GOOGL -1.24%) Google Fitbit to share fitness classes, as well as its high-profile content initiatives with brands like Lululemon (LULU -0.82%) and TikTok, demonstrates a concerted effort to diversify engagement channels and attract diverse audiences.

In terms of operational efficiency, Peloton has achieved significant cost savings. The company’s restructuring efforts have contributed to significant reductions in operating expenses. In addition, the focus on more sustainable offerings, such as the Bike+ rental program and sales of refurbished inventory, reflects a shift to a leaner, more resource-efficient operating model.

Looking at the material events, Peloton’s restructuring also included the termination of its original bike rental due to insufficient refurbished inventory. This move aligns resources to more promising areas, such as the Bike+ rental program and sales of refurbished inventory, increasing the company’s operational efficiency and potential profitability.

Looking ahead

Peloton’s management provided a cautious outlook for the current quarter and full fiscal year. For the first quarter of fiscal 2025, revenue is expected to be between $560 million and $580 million, with adjusted EBITDA estimated to be between $50 million and $60 million. For fiscal 2025, management anticipates total revenue to fall to a range of $2.4 billion to $2.5 billion, with significant improvements in adjusted EBITDA, which is expected to reach between $200 million and $250 million.

Investors should keep a few key areas in mind. Sustained innovation and product diversification, particularly in areas such as treadmill programming and digital app offerings, will be crucial. Additionally, Peloton’s efforts to form strategic partnerships and increase member engagement through quality content will be vital to stem the tide of membership churn. Cost management and operational efficiency will remain critical as the company strives to achieve sustained profitability amid market challenges.