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Peloton Stock Plummets After Wider Q3 Loss, Weak Sales Outlook As Turnaround Stumbles

"Turnarounds are hard work. It’s intellectually challenging, emotionally draining, physically exhausting, and all consuming. It’s a full-contact sport," said new CEO Barry McCarthy

Updated at 10:50 am EST

Peloton Interactive  (PTON) - Get Free Report posted a wider-than-expected third quarter loss Tuesday as the fitness equipment maker continues to struggle with the turnaround plans of new CEO Barry McCarthy.

Shares faced added downward pressure, as well, after McCarthy said the overall business was 'thinly capitalized', with only $879 million in unrestricted cash at the end of the quarter, and unveiled details of a $750 million term borrowing agreement with Goldman Sachs and JPMorgan. 

Peloton said its loss for the three months ending in March, the group's fiscal third quarter, was pegged at $2.27 per share, down from a loss of 3 cents per share over the same period last year and well outside  the Street consensus forecast of a loss of 83 cents per share. Group revenues, Peloton said, fell 23.5% from last year to $964.3 million, again missing analysts' estimates of a $973 million tally.

Looking into the current quarter, Peloton said it sees revenues in the region of $675 million to $700 million, and plans to end the period with just under 3 million subscribers to its Connected Fitness program.

"Turnarounds are hard work. It’s intellectually challenging, emotionally draining, physically exhausting, and all consuming. It’s a full-contact sport," McCarthy said in a letter to shareholders published alongside the third quarter earnings release. 

"Some of the challenges we face are systems related (there is substantial tech debt, not uncommon among successful fast-growing businesses) which tax our productivity and speed of decision making, as well as our speed of execution," he said. "And some of 1 the challenges have resulted from poor execution, like last quarter’s increased use of 3PL partners for last mile distribution. The strategy wasn’t flawed, but our execution was. Better systems. Better decision making. Better execution. We’re working on it."

Peloton shares were marked 14% lower in early Tuesday trading following the earnings release to change hands at $12.20, a move that would extend the stock's year-to-date slump to around 65.4% and value the New York city-based group at around $4 billion.

McCarthy took over as CEO in February when former boss John Foley opted to step down from his role as CEO, and move to the executive board, in a decision many viewed as the first step towards an outright Peloton sale, given the 69-year-old former Spotify  (SPOT) - Get Free Report CFO's background in taking the music-sharing group public in 2018.

The group also unveiled swingeing headcount reductions that will eliminate 2,800 jobs, more than a fifth of its workforce, and confirmed the wind-down the development of a $400 million facility it had planned to build in Ohio.

Last month, Peloton will boost the price of its connected fitness programs for the first time in eight years, while slashing the cost of its signature bikes and treadmills.

Peloton said the cost for U.S. customers for its all-access membership will rise from $39 to $44 per person, a 12.8% increase, starting June 1. For customers in Canada, the price will increase to C$55 per person from C$49 per person. Prices for international customers, Peloton said, will remain 'currently' unchanged.

The cost of the Peloton bike will fall $300 to $1,195, the company said, while the price of the upscaled Bike+ will fall $500 to $1,995. A Peloton treadmill will cost $300 less at $2,345 each.

“We want more people to be able to afford our hardware,” Peloton said in a statement. “This is a strategic decision to play for scale and increase market share.”