georgeclerk
In August, I concluded that investors in Peloton (NASDAQ:PTON) were hitting the brakes as the company has seen a soft end to the fiscal year 2022. While management talked about a turnaround, that was not yet visible in the first quarter outlook for 2023. This observation, in combination with large losses and a higher debt burden, made it hard to see green shoots appear on the horizon.
A Very Quick Recap
Just a $20 stock ahead of the Covid-19 pandemic, shares rallied to a high of $160 per share in 2020, on the back of gyms being closed across the country and investors wildly extrapolating momentum, as shares have imploded ever since.
On the operational front, Peloton saw sales double in 2020 to $1.8 billion and despite strong sales momentum, the company still reported an $80 million loss that year. The company guided for 2021 revenues to double to $3.6 billion, and revenues to rise further to $5.4 billion in 2022 on which EBITDA was seen at $325 million.
The issue with that margin guidance is that it marked deleverage from 2021, and after accounting for depreciation charges and stock-based compensation expenses, the company forecasted (continued) losses that year.
The issue is that even the softer (margin) guidance was still way too optimistic. Second quarter sales came in at just $1.14 billion on which an EBITDA loss of $266 million was reported. Third quarter sales fell to $964 million on which a $194 million EBITDA loss was reported. Fourth quarter revenues fell further to $679 million, this time even accompanied by negative gross margins, as operating losses (excluding amortization charges) exceeded the half a billion mark.
With 338 million shares trading at $10 in August, the market still awarded the company a $3.4 billion equity valuation. While the company held $1.25 billion in cash, net debt was reported at $300 million, a number set to rise rapidly given a fourth quarter EBITDA loss of $288 million.
Looking To 2023
At the time of the fourth quarter earnings release, the company guided for first quarter sales between $625 and $650 million, with EBITDA losses set to narrow a lot to $90-$115 million. That looks like a big improvement, but realistic losses are likely large in this scenario, as this only results in a further built-up in net debt, with few triggers on the horizon despite management’s claims of an upcoming recovery.
Since August, shares have traded in a $7-12 range, now settling around $10 per share again as the news flow has been quite active. In September, co-founder John Foley announced his resignation, as 500 job cuts were announced early in October. At a first glance, the first quarter results looked good as a softer $616 million revenue numbers was accompanied by a $33 million EBITDA loss, much better than guided for.
Operating losses came in at $374 million, and still just over $200 million even if we exclude for restructuring charges and impairment charges. Even while these results were largely in line with the guidance, the numbers remain dismal by all means.
Net debt inched up to $744 million as fortunately a massive part of the net debt load carries a zero percent interest rate, in the form of a zero-coupon convertible bond. While second quarter revenues are expected to recover in a modest fashion to $700-$725 million, EBITDA losses are still seen between $100 and $115 million, marking deleverage on a sequential basis as this is very disappointing.
This poor guidance overshadows some positive news, including a partnership with Hilton and Dick’s Sporting Goods, likely taking a long time before some contribution is seen.
The reality is that it simply feels as if the current report shows another quarter of no reduction in losses, as net debt keep increasing at an alarming pace, and losses are still huge in relation to the reported revenue base. Hence, I still see no convincing reason to get involved with the shares here.
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