We expect the challenging market conditions from Q4 to persist into Q1 2025. In Q4, Sleep Cycle managed to grow its subscriber base by 3,000 despite a challenging environment. However, available market data shows no signs of improvement, leading us to believe that Q1’s focus has been more on mitigating churn in a stagnating market rather than driving strong subscriber growth. We note that no updates have been communicated regarding the My Fitness Pal partnership launch (we assume that it’s progressing according to plan, but we also think that if it had progressed better than the internal plan, Sleep Cycle would have updated the market). Additionally, contractual liabilities (deferred income) were flat in Q4 vs the previous year, according to the annual report; this makes us a bit cautious about Q1 revenues. As a combined result of the above and FX effects, we lower our sales forecast for Q1 2025.

On the investment side, we note that a new version of the app has been released to beta testers, and the homepage has undergone a facelift. Combined with continued investments in partnerships and in the sleep apnea project, we expect increased costs, leading us to revise our margin assumptions downward for the quarter.

In summary, for Q1 2025, we lowered our sales estimate by 5% and trimmed our EBIT margin assumption by 2pp from 28% to 26%. We forecast a c3% YoY growth and a currency-adjusted growth of c6%.