Peloton's pain: Selling bikes ain't what it used to be

8/25/22 8:00PM

Stabilizers needed

‍High-end fitness equipment company Peloton scored a big victory this week, announcing a deal with Amazon that sent the company's share price up some 20% on Wednesday. Unfortunately, like the day after a really long cycle, the pain soon set in for Peloton as they then released a quarterly earnings report that revealed a $1.2bn loss.

‍We should sell... fewer bikes?

‍Among the many alarm bells in the report, the one ringing loudest of all is that Peloton is now losing money on what used to be its core business: selling fitness equipment. The company reported that it had "cut hardware prices in order to sell inventory ... despite selling that hardware at a negative gross margin".

That means the company is leaning heavily on its subscription business — where users pay monthly for access to live workouts, leader boards, advanced tracking and a library of fitness content.

Last quarter, Peloton counted more than 131 million workouts from the company's Connected Fitness subscribers. In total that was down only 2% on the same time last year, but on a per-user basis it was a major drop-off in engagement — last year in Q4 each Pelotonian averaged some 20 workouts per month, this year that number was closer to 15.

‍Peloton's new CEO is now hyper-focused on bringing the company back into the black. Giving up some control of its distribution, by partnering with retailers like Amazon, may mean even lower margins on its equipment sales, but if it gets more users signed up to a recurring high-margin subscription it may just help the wheels from coming off completely.

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Paramount reportedly receives $24 billion from Gulf funds to back its Warner Bros. takeover

Three Middle East sovereign wealth funds have agreed to back Paramount’s takeover of Warner Bros. Discovery to the tune of roughly $24 billion, according to Wall Street Journal reporting.

The company’s triumph over Netflix in the bidding war came thanks in part to financial backing from Oracle cofounder Larry Ellison, billionaire father of Paramount CEO David Ellison.

Saudi Arabia’s PIF, which last year led the $55 billion deal to take Electronic Arts private, will provide about $10 billion in the deal. The Qatar Investment Authority and Abu Dhabi’s L’imad Holding Co. is also involved.

According to the WSJ, the funds will not receive voting rights in the combined Paramount-Warner company. Those working on the deal don’t expect the Gulf funds’ involvement to spark any additional regulatory reviews.

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The company’s triumph over Netflix in the bidding war came thanks in part to financial backing from Oracle cofounder Larry Ellison, billionaire father of Paramount CEO David Ellison.

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JetBlue is raising its bag fees as fuel costs squeeze airlines

JetBlue will reportedly hike its bag fees, as the cost of jet fuel continues to climb amid the war in Iran. It’s the latest example of carriers finding ways to push rising costs onto travelers.

Last week, United Airlines CEO Scott Kirby said that if fuel prices remain elevated, fares would need to rise another 20% for his airline to break even this year.

As CNBC reported, when one airline raises fees, others tend to follow.

Earlier this month, JetBlue hiked its first-quarter outlook for operating revenue per seat mile to between 5% and 7%, saying that strong Q1 demand helped “partially offset additional expenses realized from operational disruptions and rising fuel costs.” Now, the carrier appears to be making moves to further boost revenue to offset those costs.

Earlier on Monday, JetBlue rival Alaska Air lowered its Q1 profit forecast. The refining margins for the carrier’s cheapest fuel option — sourced from Singapore and representing about 20% of Alaska’s overall supply — have spiked 400% since February.

JetBlue did not immediately respond to a request for comment.