today is Aug 18, 2022

It was a tough quarter for the connected-fitness company. But demand for its products remains strong.

Key Points

  • Revenue came in ahead of analyst estimates, but Peloton's bottom line cratered.
  • The company rolled out a surprise price cut for its Peloton Bike.
  • Recall-related costs weighed on the quarter.

Peloton Interactive (NASDAQ:PTON) continues to grow rapidly, albeit at a much slower pace than in recent quarters. After market close on Thursday, the connected-fitness company posted fiscal fourth-quarter results.

Revenue during the period came in ahead of estimates, but the company swung from a profit in the year-ago period to a significant loss, sending shares of the growth stock lower in after-hours trading. The company rolled out a 20% price cut to its original Peloton Bike, which was also concerning.

Here's a closer look at these must-see items from the quarter, along with some other key insights.

A man using Peloton Bike+ and a woman walking away from the bike after completing a workout.

Peloton Bike+. Image source: Peloton Interactive.

Decelerating growth

Peloton's revenue grew 54% year over year to $937 million. This beat analysts' average forecast for revenue of $927 million. 

Notably, however, the growth rate was far below levels in fiscal Q3, when revenue surged 141% year over year. As the stay-at-home catalyst waned amid a reopening economy, decelerating growth came as no surprise. The company was also up against an incredibly tough comparison: Peloton's revenue surged 172% in the year-ago period. 

Lower user engagement

Though the company's connected-fitness subscriptions rose 114% year over year to 2.33 million and increased from 2.08 million in the prior quarter, average monthly workouts per connected-fitness subscription sank. The key engagement metric came in at 19.9 monthly workouts per connected-fitness subscription, down from 24.7 in the year-ago period. But management says this was expected.

Negatively impacting the quarter was improved weather, compared to the year-ago period, and re-emerging "consumer mobility."

To Peloton's credit, monthly workouts per connected-fitness subscription were up 66% from engagement levels in the fourth quarter of fiscal 2019.

A huge price cut

In a surprise announcement, Peloton said in its fiscal fourth-quarter report that it was lowering the price of its Peloton Bike by 20% to $1,495. This puts the monthly price of ownership, based on the company's 39-month financing plan, at $39 a month.

"We know price remains a barrier and are pleased to offer our most popular product at an attractive everyday price point," management said in the company's fiscal fourth-quarter report.

But Peloton seems to feel confident about demand for its bike and its other products and services, as management guided for full-year fiscal 2022 revenue of $5.4 billion -- more than the $5.3 billion in fiscal 2022 revenue analysts were expecting. 

A narrowing gross profit margin

Peloton's bottom like took a hit during the quarter as gross margin fell 12.1 percentage points to 27.1%. Weighing on gross profit was a previous Peloton Bike price cut in September of 2020, costs associated with its recent voluntary recall of its treadmills, and higher supply-chain and logistics expenses.

All of this led to a net loss of $313 million during the quarter. This compares to a profit of $89.1 million in the same period last year.

Overall, it was a tough quarter for Peloton. But there's clearly still significant demand for the company's products and services. After all, it's not an easy feat to post 54% revenue growth when you're up against a year-ago comparison of 172% growth. Further, the company's fiscal full-year outlook captures management's bullish view for the future.

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This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

Daniel Sparks has no position in any of the stocks mentioned. His clients may own shares of the companies mentioned. The Motley Fool owns shares of and recommends Peloton Interactive. The Motley Fool has a disclosure policy.

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