Peloton earnings miss, CEO says company is 'thinly capitalized'

Brian Sozzi
·Executive Editor
·2 min read
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Peloton's turnaround will take a while, new CEO Barry McCarthy warned shareholders on the company's earnings Tuesday, adding that the company was "thinly capitalized for a business of our scale."

Peloton stock crashed more than 25% pre-market.

"Turnarounds are hard work," McCarthy said at the top of the shareholder letter on his first Peloton earnings day. "It’s intellectually challenging, emotionally draining, physically exhausting, and all consuming. It’s a full contact sport."

The company's performance in its most recent quarter underscores challenges that range from working through excess bike inventory to trying to get customers to pay more for their monthly subscription to getting the expense structure correct after years of profligate spending by prior management.

Moreover, the company said its free cash flow — arguably the most important metric right now on upstart tech companies — was an outflow of $746.7 million.

Brody Longo works out on his Peloton exercise bike on April 16, 2021 in Brick, New Jersey. (Photo by Michael Loccisano/Getty Images)
Brody Longo works out on his Peloton exercise bike on April 16, 2021 in Brick, New Jersey. (Photo by Michael Loccisano/Getty Images)

McCarthy pointed to a new $750 million five-year debt agreement as a step toward shoring up Peloton's balance sheet but also McCarthy hinted that he may have to look for more financing to stabilize the company's finances.

"We finished the quarter with $879 million in unrestricted cash and cash equivalents, which leaves us thinly capitalized for a business of our scale," McCarthy stated. "Earlier this week we took steps to strengthen our balance sheet by signing a binding commitment letter with JP Morgan and Goldman Sachs to borrow $750 million in 5-year term debt."

Peloton reported that fiscal third quarter sales clocked in at $964.3 million, below analyst estimates for $971 million. The company also lost $194 million on an adjusted EBITDA basis, worse than analyst forecasts for a loss of $132 million.

Guidance for the next quarter also brought bad news: The company sees sales of $675 to $700 million, compared to an $820 million estimate from analysts, and adjusted EBITDA of -$115 million to -$120 million — compared to analyst estimates of -$19 million.

This post has been updated with Peloton's premarket move and add more of McCarthy's comments.

Brian Sozzi is an editor-at-large and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.

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