Shares of Peloton slumped to a new low Tuesday morning (May 10) after the embattled connected fitness company posted a $750 million loss and said the pace of new subscriber growth fell 50% last quarter.
The news triggered a 20% sell-off in the stock, which had already fallen 70% in the past six months, and marked the first quarter of earnings results under new CEO Barry McCarthy, who thanked the company’s 7 million members for their loyalty and 8,000 employees for their continued hard work, noting that the path forward would continue to be challenging for at least another year.
“Turnarounds are hard work,” McCarthy wrote in a letter to shareholders released alongside the fiscal third-quarter results. “It’s intellectually challenging, emotionally draining, physically exhausting, and all consuming.”
While the bike, treadmill and online fitness app company saw its total membership number rise 29% from a year ago with 195,000 net subscriptions added for the three months that ended March 31, that figure was only about half the 414,000 net new users it added a year ago. At the same time, the company’s closely watched workouts per month metric also fell 28%, a statistic that could suggest that existing Peloton users might be losing interest in the at-home gym experience.
The Way Forward
“Peloton is facing the same problem Apple faced with the iPhone — turning a hardware company into a software company without diluting the value of the hardware in the process,” PYMNTS CEO Karen Webster said in the wake of the latest results.
In labeling this digital transformation as the company’s primary challenge, Webster stressed the difficulty Peloton faces in creating a robust software/app ecosystem while at the same time rethinking its hardware business model to expand the addressable market of consumers for its products.
To that point, Peloton said it ended the quarter with 976,000 digital app subscriptions, which was up 10% from 2021, even though the New York-based firm said its brand awareness in the U.S. remained quite low at just 4%, noting that it was “still known primarily as a stationary bike company.”
“The app has never been a focal point of our marketing campaigns or growth strategy. We are in the process of rethinking how we go to market in order to accelerate its growth,” McCarthy said, noting the need for some reinvention and a triple-digit increase in ad spending. “…The digital app needs to become the tip of the spear, so to speak, if we’re going to reach 100 million members.”
The Magic and the MoJo
This is not to say Peloton is pulling away from hardware, as the new CEO also told analysts of the need for a redesign that would make it easier to install and deliver its gear, which he said was “not nearly sufficient” given the $2,000 price point required to buy some of Peloton’s machines.
“[Hardware] is the thing that makes us special, that accounts for the low churn rates that drive the outrageously high net promoter scores,” McCarthy said of the company’s 0.75% customer turnover ratio.
Even so, McCarthy said the overarching strategy is all about connected fitness and “the magic that happens in the tablet.”
“We can’t get there without making the digital app a big success,” he said. “That’s pretty clear. We can’t get there without having a broad scale international business.”
He noted people outside the United States also care about fitness.
“There’s an opportunity for us to capitalize on that,” McCarthy said before acknowledging the work that still needs to be done for the remainder of this year.
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