Peloton is gearing up for a rebrand as the company continues enlarging its view of who its customers are and how they prefer to exercise, which executives admitted may have nothing to do with hardware, revolving more around a reimagined app and new subscription tiers.
Releasing its fiscal third-quarter 2023 earnings results Thursday (May 4), Peloton CEO Barry McCarthy said in a shareholder letter: “Later this month we will relaunch our brand in order to better communicate the brand value proposition, and we will re-introduce the Peloton app with a tiered membership structure as a mobile gateway to our amazing fitness content from strength and meditation to outdoor running.”
“Our goal in relaunching the app is to engage new categories of customers, drive top-of-the-funnel awareness for Peloton, and become a meaningful contributor of revenue for our business,” he added.
Taking questions from analysts, McCarthy said: “In the letter, I spoke about the fact that we’re primarily known as a bike company, but the behaviors of our members extend well beyond that into many different categories of exercise, and a large percentage of folks use no hardware at all. We haven’t done a very good job of communicating that to prospective members, and we’re looking to improve upon that.”
While keeping mum on many details of the coming rebrand, Chief Financial Officer Liz Coddington told analysts that going forward, Peloton is putting a focus on “growing our subscribers efficiently. And while we expect to target a lower [lifetime value (LTV)] to [customer acquisition cost (CAC)] ratio in Q4 than we did in Q3 … our forecast assumes that we will maintain a strong financial discipline, and we will not overspend either via media spending or by cutting prices or slashing them to acquire unprofitable subscribers.”
New subscription tiers and pricing were not revealed, and there was some question as to how an open ecosystem would impact Peloton’s connected fitness gear business.
“The way to think about it is that they aren’t all going to offer the same offering to consumers,” Coddington said. “So, for example, what we offer for connected fitness is all our content on our hardware, along with access to the app. You kind of get everything. It’s all access. The different app tiers will have different amounts of content experiences available to you at different price points. That’s how we’re protecting all-access membership in that regard.”
Regarding the rental of Peloton Certified Refurbished (PCR) bikes under its Fitness-As-A-Service (FAAS) offering launched last year, McCarthy’s letter noted that the program grew to 47,000 subscribers in Q3 “with an average monthly churn rate of 5% and with an average payback of 18-19 months.”
He added that FAAS subscribers grew 70% quarter-over-quarter in Q3, saying: “Consumer research tells us FAAS rentals are highly incremental, with 62% of respondents saying they wouldn’t have subscribed if it weren’t for the flexibility our new rental program offers.”
Additionally, he said in the letter that Peloton is “having success with the sale of our PCR bikes which we launched in December of 2022, following several successful tests in FY23. The program currently includes Bike and Bike+. We’re exploring whether to extend the program to Tread and Row later this year.”
A total of 7,000 PCR bikes were sold in Q3, which include the Bike and Bike+ models, and McCarthy said: “These two programs accounted for 24% of connected fitness hardware sales in Q3. We expect to continue to scale both programs in FY24.”
As for Peloton’s third-party hardware sales pacts with Amazon and Dick’s Sporting Goods, Coddington noted that it’s uncharted territory for the company.
“It’s about us learning how to be a good wholesale partner to a retail business that is more traditional brick-and-mortar,” she said. “That’s not there where our business has come from. We’ve been most web-centric in how we sell and how we deliver to our consumers. So, we’re working through with Dick’s how to be a good partner to them and how to leverage their channel so that we can both be even more successful.”
In its fiscal Q3 filing, Peloton also noted that it has settled and reached a patent license agreement after DISH sued Peloton for infringing on its patented streaming technology.
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