Peloton achieved positive free cash flow for the second consecutive quarter, blowing out expectations.
Peloton Interactive (PTON 35.42%) looks to finally be reaping some benefits from a turnaround plan long in the making. Investors piled into the interactive fitness company’s stock Thursday after Peloton reported its fiscal fourth-quarter results.
Shares were up 27% just before 11 a.m. ET, after the company beat earnings and revenue expectations as the company continues to execute its turnaround strategy. Even so, shares of the struggling company are still down by about 30% year to date.
Peloton is shifting gears
Investors now apparently think there could be value in shares as the stock’s decline is weighed against improving business metrics and a strategy shift. The company reported sales of $644 million for the quarter. That was higher than analysts expected and was a slight increase compared to the prior-year period. That was the company’s first year-over-year sales increase over the past nine quarters.
Perhaps more importantly, the company is improving its profitability measurements. Former CEO Barry McCarthy, who resigned earlier this year, laid the groundwork for the company’s shift from focusing on growing hardware sales to improving the bottom line. That is now paying off as Peloton searches for McCarthy’s replacement.
In addition to cost-cutting initiatives and layoffs, the company refinanced its balance sheet, and focused on growing subscription revenue rather than just increasing sales of its pricey bikes and treadmills. It’s doing that through sales in the secondary market and clearing out inventory using its bike rental program.
Customers can buy used Peloton bikes for a fraction of the cost of a new unit, and that adds incremental subscription income for the company. Paid subscriber additions jumped 16% year over year from hardware purchased on the secondary market.
The company said it is prioritizing improving profitability and free cash flow for fiscal 2025. Peloton reported positive free cash flow for the second consecutive quarter, which hasn’t happened since Q2 of 2021. Investors value that metric, and today’s pop shows they are buying the stock expecting more to come.
Howard Smith has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Peloton Interactive. The Motley Fool has a disclosure policy.
