Peloton CEO Says App Subscriptions Are ‘Path to the Promised Land’

Peloton says its focus on subscriptions, fitness as a service and third-party partnerships with Amazon and Dick’s are paying off.

During its fiscal second quarter 2023 earnings call Wednesday (Feb. 1) Peloton CEO Barry McCarthy added detail to comments in a shareholder letter that portrays a company in transition as the connected fitness brand continues to open its ecosystem with what McCarthy called an “anyone, anytime, anywhere” strategy.

“If you’ve been wondering whether or not Peloton can make an epic comeback, this quarter’s results show the changes we’re making are working,” McCarthy told shareholders and investors, after releasing the company’s results for the three months that ended Dec. 31.

While Peloton’s top-line revenue fell 30% to $792.7 million from a year ago, led by a 52% drop in fitness products sales, its subscription revenues were up 22%.

As its year one restructuring plan progresses, McCarthy said the Fitness as a Service (FaaS) offering and sales of refurbished hardware through Amazon and Dick’s Sporting Goods “have been important contributors to the turnaround of our business,” together representing approximately  19% of Connected Fitness Unit (CFU) order volume in Q2.

Peloton launched two new products in the quarter — Row and Guide — and he said, “You can expect us to continue leaning into these new initiatives.”

Moving further from its hardware business and deeper into subscriptions and content, Pelton ended the quarter with 3.03 million Connected Fitness subscriptions. Average net monthly Connected Fitness churn for the quarter was 1.1%, “in-line with expectations,” it said.

Subscriptions rose on “higher than anticipated North American Bike portfolio demand during our Black Friday/Cyber Monday promotion, secondary market activations, growing demand for our bike rental program, and faster deliveries prior to the end of the quarter,” the letter said, with North American Bike the largest contributor to Connected Fitness growth.

McCarthy added, “with respect to the app, I think of it as its own end game. The end goal for that strategy is to expand the TAM by reaching a user base that historically we’ve not been able to access, to do it with our core strength, which is all of the content and the user experience that our instructors give life to, and to enable consumers can use that content on competitive hardware and to use it in the home and to use it in the gym and to use it outside.”

He said, “the path to the Promised Land is the app. At least that’s how I conceptualize it. That’s the opportunity we’re trying to pursue.”

However, that’s a work in progress as he noted that “we have seen plenty of churn historically, particularly at the end of the seasonal rush, so we’re forecasting that whatever incremental growth we have, we will get back in the form of churn. We’re not forecasting a spike in the churn rate. It’s just the math, to be clear.”

He said forecasting accuracy is “not as highly evolved yet as it will be” in subscriptions so Peloton can’t say if subscriber gains are from its new model or changing consumer behavior.

CFO Liz Coddington referred to the drawdown in inventory and outsourcing hardware production as “tailwinds” going into fiscal 2024, saying, “It’s really all about being very conscious about our OpEx and making sure that we are as efficient as we possibly can be and measuring that LTV to CAC analysis to make sure that we are acquiring subscribers efficiently.”