Peloton stock is surging — but here are 3 bad numbers from the latest earnings.
Peloton PTON CEO Barry McCarthy hyped up the company in a new shareholder letter that helped fuel a 20% short-covering rally in Peloton's stock on Wednesday.
If you've been wondering whether or not Peloton can make an epic comeback, this quarter's results show the changes we're making, McCarthy said.
One could appreciate the enthusiasm of the veteran tech exec, who has helmed Peloton for a year, in reporting a better than expected quarter for the struggling fitness equipment maker.
The company made progress in containing its bloated cost structure and preserving dwindling cash flow in large part because of the headcount axe McCarthy swung at the company in 2022.
The comeback bluster of McCarthy may be misguided.
Wall Street still has reservations about the long-term path forward for Peloton, especially as the latest quarterly results were far from fundamentally amazing. They just weren't that horrible, which may not be a good enough reason for investors to back up the truck on the stock.
EvercoreISI analyst Shweta Khajuria said on Yahoo Finance Live that it may be a respectable comeback. Here are three red flags that stood out to Yahoo Finance in its analysis of Peloton's fiscal second quarter, which warrants a rethink by the bulls.
In the second quarter, Peloton's free cash flow saw an outflow of $94 million. Free cash flow declined by $747 million over the past twelve months.
McCarthy said in his letter that we won't have the wind at our back every quarter, but we continue to do what's necessary to ensure that this trend continues. As a result, we can now control our own destiny. Our goal is to reach free cash flow breakeven by the end of FY 23. Peloton's subscription sales declined by about $1 million sequentially, even though the number of members was consistent at around 6.7 million.
Simeon Siegel, BMO Capital Markets analyst Simeon Siegel, wrote in a client note that this dynamic shows potentially eroding quality of sales subs and continues to raise the question as to whether Peloton has exceeded its core and committed potential user base.
The sluggish sales trajectory underscored Peloton's difficulty in expanding its market, a factor that has analysts worried about the long term.
The market is not as big as we thought, in terms of the ability to penetrate every household, Khajuria said.
Peloton's cost-cutting methods haven't led to profitability on an operating basis.
The company's price structure and pricing pressure on its products could be seen in its buzzy holiday deals Peloton's quarter adjusted EBITDA earnings before interest, taxes, depreciation and amortization, which a company has clocked in at a loss of $122.4 million. Peloton's adjusted operating loss has tallied $155.8 million, which is the lowest level since the beginning of the year.
Brian Sozzi is an editor-at-large and anchor at Yahoo Finance. Follow Sozzi on Twitter, BrianSozzi, and LinkedIn.