June 25, 2022

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Peloton is burning money and borrowing from Wall Street to stay afloat

A brief look back at Peloton's bumpy ride

The once-hot company reported a dismal quarterly financial report on Tuesday, with sales down 15% from a year ago. Peloton lost $757 million last quarter.

peloton (PTON) CEO Barry McCarthy said the bank said it had only $879 million in cash at the end of the quarter, leaving it with “poor capital.” This forced the company to borrow a large amount of money from Wall Street to continue its operations.

As people return to the gyms, Peloton has struggled to maintain its electric growth since the early days of the pandemic. Bicycle sales and subscriptions stagnated. The company has a very large inventory, and the demand is declining.

To combat this, McCarthy lowered the prices of its products Treadmills and bikes. That drove daily sales up 69%, McCarthy said. He also plans to sell Peloton products to third-party retailers for the first time ever.

“Transitions are hard work,” McCarthy told investors in a letter to shareholders. “It’s intellectually challenging, emotionally exhausting, physically exhausting, all exhausting. It’s a full contact sport.”

But the company’s return – if there is one – is slower than Wall Street wants. Peloton added just 195,000 new subscribers last quarter, less than half of what it was adding a year ago. The company said it will generate nearly $700 million in sales this quarter, far less than investors had expected.

Neil Saunders, managing director of GlobalData, said in a note to investors that Peloton’s $757 million loss is “extremely bad” and “underscores the enormity of the mission heart of the business.”

“It is reasonable to assume costs could be reduced further, but even with these future savings, Peloton will remain, at best, a low-profit company with a poor return,” he added.

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Peloton shares are down 15% in early trading. The stock is down about 90% since hitting an all-time high in late 2020.

To stay afloat, McCarthy said Peloton is borrowing $750 million in five-year debt from JPMorgan and Goldman Sachs, two banks that helped secure the initial public offering.

“I want to thank everyone involved in the hard work in completing this important funding and look forward to reporting on the progress we’ve made in reshaping the Peloton business in the coming quarters,” McCarthy said.