Break the cycle: Peloton is pedaling uphill

2/1/24 7:00PM

Uphill struggle

‍If you’ve ever wanted to buy a Peloton bike, but never wanted to part ways with the ~$2,000 required to get one, you might be able to justify the expense to yourself knowing that the company likely won’t be making any money from your equipment purchase.

Indeed, yesterday Peloton reported another strained set of earnings, slashing its outlook for the coming year and sending its shares down 25%: an all-time low for the company once hailed as the pandemic’s fitness savior. The high-end bike and treadmill maker reported that, in its latest quarter, it made just a sliver of gross profit ($13.8m) on actual product sales — that’s profit only derived from the sale of the item itself. Once sales and marketing expenses, general & administrative expenses, research and development costs, or any other “overheads” were accounted for, Peloton remained deeply in the red.

‍Shifting gears

‍Current CEO Barry McCarthy took the reins in February 2022, when gyms were fully reopened and product issues were shaking Peloton. Cutting prices helped stem the losses, but it left the subscription business as Peloton’s financial backbone, relying on the famously energetic live online classes to pedal the company forward. However, despite deals with Lululemon and TikTok — as well as new distribution channels through third-party retailers like Dick’s Sporting Goods and Amazon — Peloton just hasn’t been able to grow subscriptions meaningfully in recent months.

On paper, the business model isn’t inherently flawed: Costco, for example, has a wildly successful subscription-based service, selling a wide array of products for close to cost but profiting enormously on the membership needed to shop there.

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Shares of eBay fell as much as 10.5% in premarket trading on Thursday morning after the company gave a lower-than-expected profit forecast for the important holiday shopping season.

The e-commerce giant reported solid numbers for the third quarter on Wednesday, with revenue up 9% as reported to $2.8 billion and gross merchandise volume rising 10% to $20.1 billion, topping the average analyst forecast of $19.4 billion, per Bloomberg.

However, concerns about the future somewhat overshadowed these results.

eBay outlined its profit outlook for the period ending in December to $1.31 to $1.36 a share, with revenue at $2.83 billion to $2.89 billion. According to Bloomberg-compiled data, this broadly matches Wall Street’s estimates for the top line, but misses on the bottom line, with analysts forecasting EPS to come in at $1.39 — suggesting the company expects some further margin pressure.

The company has been facing macroeconomic challenges since the US ended the de minimis tariff exemption in late August, with the online marketplace reliant on shipments. One small silver lining? CFO Peggy Alford highlighted a “less durable trend” on a post-earnings call: that as commodity prices for precious metals boomed, demand for bullion and collectible coins on eBay spiked.