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Platoon losses grow as chief warns company is ‘thinly capitalised’

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Shares of Peloton hit new lows on Tuesday after the connected fitness company reported much higher than expected quarterly losses and warned it was “poorly capitalized” for a business of its size.

The New York-based exercise bike and treadmill maker reported a net loss of $757 million for its fiscal third quarter, nearly triple the $267 million loss forecast by analysts. Peloton now expects fourth-quarter revenue of between $675 million and $700 million, below analysts’ consensus forecast of $820 million.

Peloton shares fell 20% to $11.35 in early trading, more than 90% below the high reached in late 2020 when Wall Street bet the company would be a lasting beneficiary of pandemic-induced changes in the economy. the physical fitness of consumers. diets.

As the easing of coronavirus-related lockdowns encouraged more people to return to gyms and fitness studios, Peloton has struggled to sustain its equipment sales, which account for around 60% of revenue.

“We ended the quarter with $879 million in unrestricted cash and cash equivalents, which leaves us barely capitalized for a company of our scale,” said Barry McCarthy, chief executive, who succeeded co-founder John Foley. as CEO in February.

Peloton was rethinking its capital structure after finding itself with a large inventory of unsold equipment, McCarthy said, causing it to spend money. He revealed that the company had signed a binding commitment with Morgan Stanley and Goldman Sachs to borrow $750 million to strengthen its balance sheet.

McCarthy said the group’s new goal was to become “a global connected fitness platform” with 100 million members, describing its digital app – rather than its bikes – as key to attracting a customer base equivalent to more than half of current gym memberships worldwide. .

McCarthy, a former Spotify and Netflix executive, ignored calls from some investors to sell part of the company, saying such a move was not part of his plans.

Activist investor Blackwells Capital, which has a nearly 5% stake, has accused McCarthy of failing to reform the governance of the connected fitness company. Earlier this month, The Wall Street Journal reported that Peloton was exploring the possibility of selling a minority stake, which the company has not confirmed.

Peloton shares surged in the first year of the pandemic, then fell as gyms reopened and investors cut expectations for growth, prompting the company to cut 2,800 jobs and quit its plans to open a $400 million plant in Ohio.

The group was valued at $8.1 billion when it went public in September 2019 and its market cap hit nearly $50 billion at the end of 2020 before dipping below $4 billion on Tuesday. The stock price tumble is a blow to directors such as Foley and to new investors including MSD Partners, which manages investments for Dell Technologies founder Michael Dell and others.

McCarthy said the group would expand its distribution through third-party retailers, expand into international markets and roll out an equipment rental program with a subscription service.

For the third quarter, Peloton said weaker-than-expected equipment sales pushed its revenue down $1.26 billion to $964 million, missing analysts’ expectations of $973 million.

Subscription revenue for the quarter increased 55% year-on-year to $370 million. Peloton said it expects to receive a boost in subscription revenue in its next fiscal year when it raises the price of its digital subscriptions, though it acknowledged that could lead to cancellations.

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