At-home fitness company Peloton (PTON) reported earnings on Wednesday before the opening bell.
Peloton reported a wider-than-expected Q2 loss, which ended in December 2022. It lost $42.8 million on its connected fitness products (the category under which its bikes and treads fall), which accounted for a -11.2% gross margin. Fitness product sales were down 52%.
Overall, Peloton's gross margin came in at 29.7% -- much of that success comes from its subscription model, which boasted a robust 67.6% margin at $277.9 million.
Image source: Peloton.
Peloton Is Rolling Out a New Strategy
Ongoing profitability quibbles aside, Peloton CEO Barry McCarthy foresees a road to creating happy shareholders in the future.
"If you’ve been wondering whether or not Peloton can make an epic comeback, this quarter’s results show the changes we’re making are working," he said on the Wednesday morning call.
"We take a holistic view of the revenue stream and the expenses associated with both the hardware and the subscription associated with it. So from my part, I don’t particularly care about the hardware margin," he said, suggesting the path to profitability is strongly associated with its app and subscription business, rather than its tactile workout products.
Peloton Planning a Re-Launch
Peloton is no stranger to pivoting and adapting. It's part of what made the company a pandemic darling when everyone was suddenly at home with a lot of time and maybe a little extra money to spend. This time around, McCarthy is tasked with revitalizing the brand and helping it to shed its reputation as just a pandemic play.
"[In terms] of growth in the digital app, we deemphasized it a little bit," he said. "Our strategy is to relaunch the digital app in the new year. It will be a different price value opportunity than it is currently. There'll be a tiered pricing associated with our content strategy -- a new content strategy. We're chasing the 100 million digital app users. The current product has never really grown bigger than 1 million."
It seems McCarthy, who took over as CEO in February, foresees Peloton as more of a subscription service than as a hardware company. Once criticized as a bike with an iPad attached, its rivals might now be considered Apple (AAPL), which houses Apple Fitness, as opposed to the Planet Fitnesses (PLNT) and Bally's (BALY) of the workout world.
