Lift From Peloton Deal With Amazon Wiped Out As Quarterly Loss Climbs To $1.2 Billion

Peloton stock jumped yesterday by almost two dollars to $13.57 on news of a deal to sell certain items on AmazonAMZN
. But the share price has come crashing back down this morning ($10.71 at 10.57am) after the interactive fitness platform announced its quarterly and full- year results for fiscal 2022.

On Wednesday, Peloton InteractivePTON
announced that the company’s bike ($1,445 at launch), guide, and select accessories and apparel would be available to purchase on Amazon for the first time, with bike delivery available across most of the country. Until now, Peloton’s new products and accessories were sold, exclusively, through the brand’s e-commerce site, inside sales channels and global showrooms in the U.S., U.K., Canada, Germany, and Australia.

However, today, Peloton—which has a current membership of just under 7 million—reported an operating loss of $1.20 billion in its fourth quarter ending June, though the company was at pains to point out that $415 million of that was related to restructuring charges. The stock, once riding high at more than $160 in January 2021 when pandemic at-home exercising was at its peak, teetered below $10 in July, and it is approaching that level once again.

In a letter to shareholders today, Peloton’s CEO and President Barry McCarthy said: “The loss reflects the substantial progress we made this last quarter re-architecting the business to reduce the current and future inventory overhang, converting fixed to variable costs, and addressing numerous supply chain issues.”

But McCarthy was also aware of how it looked to the investor community, and added: “Naysayers will look at our Q4 financial performance and see a melting pot of declining revenue, negative gross margin, and deeper operating losses. They will say these threaten the viability of the business. But what I see is significant progress driving our comeback and Peloton’s long-term resilience.”

Building back better?

In the six months leading up to the fourth quarter, Peloton averaged negative free cash flow of approximately $650 million per quarter but reduced that outflow to $412 million in Q4. The company also has new executive leadership, most recently former Amazon Web Services executive Liz Coddington as CFOCFO
; renegotiated supply contracts; and diversified its retail channels with the Amazon tie-up, with other deals to come.

The company, founded in 2012, says its aim is to reach break-even cash flow on a quarterly basis in the second half of FY23. From a supply chain perspective, Q4 was primarily focused on reducing inventory commitments and outsourcing all manufacturing for connected fitness hardware. Both were achieved, which resulted in the shutdown of the company’s owned manufacturing activities in Taiwan.

Earlier this month, Peloton announced it was outsourcing roughly half of its member support resources and a complete shift to third party providers for last mile delivery in the U.S. Inevitably this strategy slashed employee numbers by roughly 760, which should reduce expenses annually by approximately $45 million.

The Peloton store on amazon.com widens the brand’s reach to millions of potential customers worldwide. Peloton’s chief commercial officer, Kevin Cornils, described the move as “an organic way to increase access to our brand,” but it could also be seen as a desperate move to drive up revenue. Though membership has grown from 5.9 million in June 2021 to 6.9 million today, sales have been decreasing and in Q4 they were down 28% year-on-year to just under $680 million. Full-year sales fell to $3.6 billion from last year’s $4 billion.

Through the new distribution, orders will be fulfilled by Amazon’s logistics network and, for the first time, new members will have a self-assembly option in addition to the traditional assembly service. “We remain engaged in productive conversations with other prospective retail partners and are hopeful we’ll be able to announce additional partnerships soon,” said McCarthy.