Maridav
In June of this year I called shares of Peloton Interactive (NASDAQ:PTON) a speculative name, at best. Shares imploded at the time, trading around the $10 mark, as the operational results continue to worsen, despite “EBITDA” improvements. With losses depleting the net cash balances, shares have been trading too low to create a viable financing option, creating tough conditions for the company to address its issues.
Some Background
Just a $20 high profile stock ahead of the pandemic, it was the momentum run induced by the Covid-19 pandemic which fueled shares to rise to $160 that year, as the implosion started soon thereafter. The company was a perfect play on the pandemic, with gyms closed across the country and investors wildly extrapolating the momentum run in the operations further into the shares as well.
Revenues doubled in 2020 to $1.8 billion, yet despite the strong growth the company still posted an $80 million loss that year. Guiding for revenues to double to $3.6 billion in 2021, and EBITDA set to improve to $200-$275 million, there were quite some adjustments from the EBITDA numbers to arrive at realistic earnings. At their peak, these shares represented a $50 billion valuation as the trouble is that slower growth went hand in hand with significant deleverage on the bottom line.
The company guided for fiscal 2022 revenues to rise further to $5.4 billion, yet EBITDA losses were originally seen at $325 million, a roughly six hundred million deleverage from the fiscal year 2021. If we factor in D&A expenses, but mostly substantial stock-based compensation expenses, realistic losses were huge by a means, and as it turned out, they only came in far greater than guided for already.
Earlier this year the company posted a 6% increase in second quarter 2022 results to $1.14 billion, accompanied by a $266 million EBITDA loss. The company reported third quarter sales down to $964 million, with EBITDA losses of $194 million higher than guided for. The company guided for fourth quarter revenues between $675 and $700 million with EBITDA losses seen between $115 and $120 million. These are dismal results as the 333 million shares still represent a $3.3 billion valuation at $10 per share in June.
The issue is that operating losses are still huge at a run rate of around a billion, all while net cash balances have come under a great deal of pressure as well. Since the worst time in June shares have recovered a bit to the $14 mark in recent weeks as the stock market and technology names recovered, but the fourth quarter results were not that impressive.
Fourth quarter revenues fell further to just $679 million as the company even posted negative gross margins. The company posted an operating loss of $1.20 billion, although that number included a $337 million supplier settlement charge and similar number of impairment charge as well. Adjusted for these expenses, operating losses still came in around $525 million as the company is now starting to racketing up interest expenses as well.
Tough Times
Amidst continued dilution, the share count of Peloton has risen to 338 million, as a share price of $10 and change works down to a $3.5 billion equity valuation here. While the company still holds a $1.25 billion in cash and equivalents, the company has taken on $697 million in regular debt and another $864 million in convertible debt. Excluding the conversion option, net debt is now seen at just over $300 million.
For the quarter, the company posted an adjusted EBITDA loss of $288 million. The outlook for the first quarter of the fiscal year 2023 is dismal with revenues seen at just $625-$650 million, albeit that negative gross margins should improve to a more reasonable 35% again.
This should be the driver behind adjusted EBITDA losses narrowing to $90-$115 million which marks nearly a two hundred million improvement from the fourth quarter of 2022. That does not say much as operating losses still exceeded half a billion, even adjusted for some items, as we have just seen, indicating that operating expenses are not really expected to come down (yet).
Comparing this situation to June, I feel that the fourth quarter was softer than guided for as the first quarter outlook is not too inspiring either, all while the company keeps digging a hole in terms of continued losses which are very real and very steep.
Hence, it is of course not the time to become pessimistic on the shares here after a more than 90% fall in the price. But the situation is simply too uncertain and dire to see any reason to get involved here, as few green shoots are seen here, despite a recent Amazon deal to sell its product on that venue.
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