May 19, 2022

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Peloton is burning through cash and borrowing like crazy to stay afloat

Peloton is burning through cash and borrowing like crazy to stay afloat


New York
CNN Business

peloton turnaround plan It can’t happen fast enough: The home fitness company keeps losing money — and soon they run out.

The once-hot company reported a dismal quarterly financial report on Tuesday, with sales down 15% from a year ago. Peloton lost $757 million last quarter.

peloton

(PTON)
CEO Barry McCarthy said he had only $879 million in cash in the bank at the end of the quarter, making it “undercapitalised,” CEO Barry McCarthy said. This forced the company to borrow a large amount of money from Wall Street to continue its operations.

As people return to the gyms, Peloton has been struggling to maintain its electric growth since the early days of the pandemic. Bicycle sales and subscriptions stagnated. The company has a very large inventory, and the demand is declining.

To combat this, McCarthy lowered the prices of its products Treadmills and bikes. That drove daily sales up 69%, McCarthy said. He also plans to sell Peloton products to third-party retailers for the first time ever.

“Transitions are hard work,” McCarthy said frankly to investors in a letter to shareholders. “It is intellectually challenging, emotionally draining, physically exhausting, all exhausting. It is a full contact sport.”

But the company’s return – if there is one – is slower than Wall Street wants. Peloton added just 195,000 new subscribers last quarter, less than half of what it was adding a year ago. The company said it will generate nearly $700 million in sales this quarter, far less than investors had expected.

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Neil Saunders, managing director of GlobalData, said in a note to investors that Peloton’s $757 million loss is “extremely bad” and “underscores the enormity of the mission heart of the business.”

“It is reasonable to assume costs can be reduced further, but even with these future savings Peloton will still be, at best, a low-profit company with poor return,” he added.

Peloton shares are down 15% in early trading. The stock is down about 90% since hitting an all-time high in late 2020.

To stay afloat, McCarthy said Peloton is borrowing $750 million in five-year debt from JPMorgan and Goldman Sachs, two banks that helped with the initial public offering.

“I would like to thank everyone involved for their hard work in completing this important funding, and I look forward to reporting on the progress we have made in reshaping the Peloton business in the coming quarters,” McCarthy said.