Peloton Interactive (PTON) shares moved firmly higher Wednesday after the fitness equipment maker posted a wider-than-expected second quarter loss but noted that its subscription business outpaced hardware sales as the group's turnaround continues to gather momentum.
Peloton said its adjusted loss for the three months ending in December, the group's fiscal second quarter, was pegged at 98 cents per share, well outside the Street consensus forecast of 64 cents share but inside last year's loss of $1.36.
Group revenues, Peloton said, fell 29.8% from last year to $792.7 million, but topped analysts' estimates of a $710.5 million tally as sales from subscriptions -- pegged at $411.3 million -- overtook hardware for the third quarter in succession.
Looking into the current quarter, Peloton said it sees revenues in the region of $690 million to $715 million, with connected fitness subscribers of around 3.085 million.
"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," said CEO Barry McCarthy in a letter to investors. "Despite seasonally strong hardware sales, for the third consecutive quarter, we generated more revenue from subscriptions than we did from hardware sales"
"This trend is gross margin accretive because subscription gross margins significantly exceed hardware gross margins," he added. "If this trend continues, which seems likely since we sell more hardware in Q2 than any other quarter of the fiscal year, it represents a structural shift toward improving gross margins in the business."
Peloton shares were marked 18.2% higher in early Wednesday trading immediately following the earnings release to indicate an opening bell price of $15.28 each, a move that would extend the stock's six-month advance to around 58%.
Peloton said it reported negative free cash flow of $94 million, down sharply from the $747 million burn rate recorded last year, "but strip out the costs of paying suppliers to settle obligations for parts we don't need, and we generated positive FCF of approximately $8 million in Q2," McCarthy said.
Peloton, which began selling its signature bikes and treadmills on Amazon (AMZN) last year in order to boost sales, remains the dominant player in the connected fitness market, with an overall share of around 67% over the final three months of last year.
