Proactive Investors - Starting off a fourth-quarter trading update with a warning that a business is “seasonal” is usually not a good sign - especially when the company is an indoor exercise bike manufacturer.
No wonder Peloton Interactive Inc (NASDAQ:PTON) is down more than 29% in pre-market trading.
Losing 29,000 subscribers in the quarter alone, due to what the company claims is a “seasonal slowdown in hardware sales”, Peloton membership shrunk by 5% year-on-year to 6.5 million, driving an adjusted loss of US$34.7 million.
However, it appears distributing unsafe equipment, yet again, might be the root of Peloton’s troubles.
Having to recall and slow the distribution of its Peloton bike because of a hazardous seat post issue, the US group said 750,000 customers requested replacements, which it claimed was “more than we expected”.
So far, the company has met 340,000 of the requests, while the remaining replacements are expected to be sorted by September, which is later than members wanted.
Up to 20,000 members have paused their subscription because of the issue and the replacements are believed to have cost Peloton around US$40 million in expenses in the fourth quarter – significantly worse than analysts predicted.
Looking forward, Peloton is launching several initiatives aimed at accelerating growth, although Barry McCarthy, the group’s chief executive officer, noted that the company has only forecast some of the expenses and none of the revenue it hopes these measures will generate in financial year 2024.
"That means there could be significant upside to our financial performance later this year, or none at all. I’m signaling significant potential upside but considerable uncertainty, in the spirit of radical transparency," McCarthy said.
Shares in Peloton closed at US$6.99 on Tuesday and are down over 72% since it listed at the start of Covid.