Peloton’s Quarterly Loss Tops $1.2 Billion

Losses come as demand for Peloton’s bikes and treadmills has plunged and the company’s count of people who subscribe to its fitness classes stagnated after growing fourfold since early 2020. The company had about 3 million subscribers to its connected fitness offering at the end of the June quarter.

Peloton shares were down nearly 20% in morning trading, as the company posted steeper losses and weaker revenue than analysts had projected. Through Wednesday’s close, its share price was down 88% from a year ago.

“The naysayers will look at our [fourth-quarter] financial performance and see a melting pot of declining revenue, negative gross margin, and deeper operating losses. They will say these threaten the viability of the business,” Chief Executive

Barry McCarthy

said in a letter to shareholders. “But what I see is significant progress driving our comeback and Peloton’s long-term resilience.”

Peloton has long sought out an affluent base of customers with stationary bikes that cost up to $2,500, and has worked to ensure only owners of its equipment are able to connect to its popular workout classes.

Mr. McCarthy, who took over in February, said the company also will court more frugal customers and make its workout classes, often accessed through screens on Peloton equipment, compatible with competitors’ exercise products.

He said the company is also trying to bring more people in through selling equipment and clothes through Amazon.com Inc.’s e-commerce platform to letting people rent bikes through a subscription. Peloton historically has offered two subscription options, one in which courses connect to bikes and treadmills and cheaper options in which classes aren’t connected.   

“You never know which initiative is going to get us where we want to go, but I am confident of the cumulative effect,” Mr. McCarthy said in a call with analysts. 

The efforts come as Peloton’s finances deteriorate. 

Revenue for the June quarter fell to $679 million, a nearly 30% drop from a year ago as declining exercise equipment sales more than offset higher revenue from subscriptions. 

Efforts to restructure the company contributed to it burning through $412 million in cash in the latest quarter, after going through $650 million in each of the prior two periods. It ended June with $1.25 billion in cash reserves and a $500 million credit line. 

Peloton is taking steps to shore up its finances, from sweeping layoffs to outsourcing manufacturing of its fitness equipment. The company said earlier this month it would cut around 800 jobs in an effort to reduce costs, after announcing in February it would lay off about 2,800 workers. Executives said cost-cutting aims to ensure the company maintains at least $1 billion in available cash.

One of the pandemic’s biggest winners, Peloton has struggled to adapt as Americans revert to prepandemic habits and tighten spending amid inflation near its highest level in decades. Americans are spending less on in-home fitness, from sales of equipment to connected workouts, as they return in droves to gyms and become increasingly cautious about spending available cash amid economic uncertainty.

Mr. McCarthy’s predecessor, Peloton co-founder

John Foley,

spent hundreds of millions of dollars to expand the company’s manufacturing and supply, betting that demand would hold as the pandemic waned. Along with replacing Mr. Foley, the company earlier this year made changes to its board and said it would cancel plans for a $400 million factory in Ohio.

For the first time, in the most recent quarter, Peloton’s subscription revenues were greater than equipment sales. Mr. McCarthy, who previously worked at

Spotify Technology SA

and

Netflix Inc.

, aims to make Peloton primarily a subscription-based company. Subscriber revenue for the quarter was $383 million; equipment sales were $296 million. 

Peloton’s subscriber count rose by just 4,000 in the quarter ended June 30 and the company predicts that the total number of subscribers will remain flat in the current quarter.

It is a big change from the start of 2021, when Peloton’s quarterly revenue peaked at $1.2 billion, and exercise equipment comprised more than 80% of sales. 

The company said it expects total revenue between $625 million and $650 million for the current quarter, which ends Sept. 30.

Mr. McCarthy, in his investor letter, likened Peloton to a dangerously tipping cargo ship he was aboard as a high-schooler when the crew managed a dramatic recovery.

“Peloton is like that cargo ship,” he said. “We’ve sounded the alarm for general quarters. Everyone’s at their station.”

Write to Sharon Terlep at sharon.terlep@wsj.com