Exercise equipment company Peloton (NASDAQ:PTON) reported results in line with analysts' expectations in Q1 CY2024, with revenue down 4.2% year on year to $717.7 million. On the other hand, the company's full-year revenue guidance of $2.69 billion at the midpoint came in slightly below analysts' estimates. It made a GAAP loss of $0.45 per share, improving from its loss of $0.79 per share in the same quarter last year.

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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.

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Sales Growth

Reviewing a company's long-term performance can reveal insights into its business quality. Any business can have short-term success, but a top-tier one sustains growth for years. Peloton's annualized revenue growth rate of 27.6% over the last five years was exceptional for a consumer discretionary business. Within consumer discretionary, a long-term historical view may miss a company riding a successful new product or emerging trend. That's why we also follow short-term performance. Peloton's recent history shows a reversal from its five-year trend, as its revenue has shown annualized declines of 16.2% over the last two years.

This quarter, Peloton reported a rather uninspiring 4.2% year-on-year revenue decline to $717.7 million of revenue, in line with Wall Street's estimates. Looking ahead, Wall Street expects sales to grow 2.5% over the next 12 months, an acceleration from this quarter.

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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 with consumers have drained company resources. Its free cash flow margin has been among the worst in the consumer discretionary sector, averaging negative 18%.

Peloton's free cash flow came in at $8.6 million in Q1, equivalent to a 1.2% margin. This result was great for the business as it flipped from cash flow negative in the same quarter last year to cash flow positive this quarter.

Key Takeaways from Peloton's Q1 Results

The big news here isn't related to the quarter's financials. Peloton that CEO Barry McCarthy (formerly of Netflix and Spotify) will be stepping down just over two years after he took over from founder John Foley. The company also announced a restructuring program to cut costs, and this will include laying off 15% of its workforce or roughly 400 employees. With regards to the numbers, they weren't good. EPS missed and its operating margin fell short of Wall Street's estimates. The company lowered full year revenue guidance. Overall, the results could have been better. The stock is up 13.8% after reporting and currently trades at $3.68 per share.

So should you invest in Peloton 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.