Exercise equipment company Peloton (NASDAQ:PTON) announced better-than-expected revenue in Q4 CY2024, but sales fell by 9.4% year on year to $673.9 million. On the other hand, next quarter’s revenue guidance of $615 million was less impressive, coming in 6% below analysts’ estimates. Its GAAP loss of $0.24 per share was 25.9% below analysts’ consensus estimates.
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Peloton (PTON) Q4 CY2024 Highlights:
- Revenue: $673.9 million vs analyst estimates of $655.2 million (9.4% year-on-year decline, 2.9% beat)
- EPS (GAAP): -$0.24 vs analyst expectations of -$0.19 (25.9% miss)
- Adjusted EBITDA: $58.4 million vs analyst estimates of $26.72 million (8.7% margin, significant beat)
- The company slightly lifted its revenue guidance for the full year to $2.46 billion at the midpoint from $2.45 billion
- EBITDA guidance for the full year is $325 million at the midpoint, above analyst estimates of $276.3 million
- Operating Margin: -6.8%, up from -25.2% in the same quarter last year
- Free Cash Flow was $106 million, up from -$37.2 million in the same quarter last year
- Connected Fitness Subscribers: 2.88 million, down 125,000 year on year
- Market Capitalization: $2.89 billion
Company Overview
Started as a Kickstarter campaign, Peloton (NASDAQ: PTON) is a fitness technology company known for its at-home exercise equipment and interactive online workout classes.
Consumer Electronics
Consumer electronics companies aim to address the evolving leisure and entertainment needs of consumers, who are increasingly familiar with technology in everyday life. Whether it’s speakers for the home or specialized cameras to document everything from a surfing session to a wedding reception, these businesses are trying to provide innovative, high-quality products that are both useful and cool to own. Adding to the degree of difficulty for these companies is technological change, where the latest smartphone could disintermediate a whole category of consumer electronics. Companies that successfully serve customers and innovate can enjoy high customer loyalty and pricing power, while those that struggle with these may go the way of the VHS tape.
Sales Growth
Examining a company’s long-term performance can provide clues about its quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Luckily, Peloton’s sales grew at a decent 16.3% compounded annual growth rate over the last five years. Its growth was slightly above the average consumer discretionary company and shows its offerings resonate with customers.
We at StockStory place the most emphasis on long-term growth, but within consumer discretionary, a stretched historical view may miss a company riding a successful new product or trend. Peloton’s recent history marks a sharp pivot from its five-year trend as its revenue has shown annualized declines of 7.3% over the last two years. 
We can dig further into the company’s revenue dynamics by analyzing its number of connected fitness subscribers, which reached 2.88 million in the latest quarter. Over the last two years, Peloton’s connected fitness subscribers were flat. Because this number is higher than its revenue growth during the same period, we can see the company’s monetization has fallen. 
This quarter, Peloton’s revenue fell by 9.4% year on year to $673.9 million but beat Wall Street’s estimates by 2.9%. Company management is currently guiding for a 14.3% year-on-year decline in sales next quarter.
Looking further ahead, sell-side analysts expect revenue to decline by 5.8% over the next 12 months. Although this projection is better than its two-year trend, it's hard to get excited about a company that is struggling with demand.
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Cash Is King
Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can’t use accounting profits to pay the bills.
While Peloton posted positive free cash flow this quarter, the broader story hasn’t been so clean. Over the last two years, Peloton’s demanding reinvestments to stay relevant have drained its resources, putting it in a pinch and limiting its ability to return capital to investors. Its free cash flow margin averaged negative 1.8%, meaning it lit $1.84 of cash on fire for every $100 in revenue.
Peloton’s free cash flow clocked in at $106 million in Q4, equivalent to a 15.7% margin. Its cash flow turned positive after being negative in the same quarter last year, but we wouldn’t read too much into the short term because investment needs can be seasonal, causing temporary swings. Long-term trends carry greater meaning.
Over the next year, analysts predict Peloton’s cash conversion will improve. Their consensus estimates imply its free cash flow margin of 5.8% for the last 12 months will increase to 10%, giving it more flexibility for investments, share buybacks, and dividends.
Key Takeaways from Peloton’s Q4 Results
We were impressed by Peloton’s optimistic EBITDA guidance for next quarter, which blew past analysts’ expectations. We were also excited its EBITDA outperformed Wall Street’s estimates by a wide margin. On the other hand, its revenue guidance for next quarter fell short of Wall Street’s estimates. Overall, this quarter showed that profitability is strong and a turnaround is in progreess. The stock traded up 12.5% to $8.55 immediately following the results.
Is Peloton an attractive investment opportunity right now? When making that decision, it’s important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it’s free.