Following the disappointing fourth quarter of the firm, Peloton investors are leaving. Barry McCarthy, CEO, is attempting to persuade them to stay, nevertheless.
The former Netflix and Spotify executive told investors on Thursday, “We happen to sit right smack of the midst of the turnaround.”
In its digital app, Peloton is experimenting with new price levels, a rental option, and the ability to play its content on devices made by rivals.
Following the disappointing fourth quarter of the firm, Peloton investors are leaving. Barry McCarthy, CEO, is attempting to persuade them to stay for what he claims will be a turnaround story.
The company’s gains on Wednesday on the announcement of a partnership with Amazon to sell some of its equipment were reversed on Thursday as shares dropped over 20%.
Peloton announced on Thursday morning that its losses for the three months ending June 30 were $1.2 billion and that revenues decreased by around 28% from the same period last year. Its linked fitness gross margins decreased as inventory grew and storage and shipping costs increased.
Peloton was able to control its cash burn, but it won’t be until at least the second half of fiscal 2023 that it expects to achieve break-even cash flow on a quarterly basis.
The absence of full-year guidance from Peloton and its dismal prediction for the current quarter led Jefferies analyst Randy Konik to write in a note to clients on Thursday that “gyms are back in a major way.”
Many Peloton members are still paying their monthly membership fees while not utilising the bikes, according to Konik. Especially once the corporation raises the cost of a monthly subscription, “those fringe customers are likely to cut the cord in the months and years ahead.”
McCarthy has claimed that he was unaware of the extent of some problems when he took over as CEO from the company’s founder, John Foley. In order to develop higher-margin subscription income faster than hardware sales, McCarthy is now cutting expenditures.
On a conference call with analysts, the former Netflix and Spotify executive stated, “We happen to sit right smack of the midst of the shift.” It’s time to return to the business after making significant headway in addressing all of the infrastructure-related challenges.
Here are three things Peloton is testing to win new users and boost sales:
- ‘Fitness as a service’
The so-called “fitness as a service” model of Peloton is still in its infancy. McCarthy came up with this strategy to increase subscription growth and decrease the entrance hurdle for potential customers who are hesitant to commit to outright purchases of one of Peloton’s products.
Customers may already hire Peloton’s original bike and have access to both its live courses and on-demand workouts for $89 per month. Once they have finished using their Bikes, these consumers can return them.
McCarthy said on Thursday that Peloton hasn’t properly marketed this option to the general public yet since it has been progressively rolled out in the US and tested with its more costly Bike+ for a monthly charge of $119. According to him, Peloton is on track to serve 30,000 to 40,000 people who rent bikes annually. A victory, according to him, would be getting closer to 125,000 to 150,000.
McCarthy said he wants to determine whether or not he “built a nuclear bomb” or is putting Peloton “on the way to the promised land” despite being pleased by the early use data.
The management said that used Bikes sold like hotcakes during trial runs earlier this year, so Peloton has been playing with the idea of selling them.
2.The Peloton digital app expanding
McCarthy has stated that he agrees with Foley that Peloton will eventually have 100 million subscribers. The increase from the current population of 6.9 million is enormous. The company’s mobile app will be crucial to this expansion.
According to Peloton, just 4% of people are aware of its digital app as of today, giving lots of room for growth. It had 980,000 app-only members at the end of the most recent quarter, up 12% from a year earlier.
McCarthy said that Peloton is now interested in developing tier-based pricing plans for the app, allowing users to pay extra for access to additional material and other perks. All customers who don’t already have a Peloton device at home now pay $12.99 a month to have full use to the app.
The CEO used his time at Netflix as an illustration. McCarthy claimed that since it gave customers a wide range of choices, Netflix was able to outlive Blockbuster in the battle for movie rental business.
According to McCarthy, “We have significantly accelerated the speed of invention, testing, and risk taking.”
3.The “Freemium” model?
Additionally, Peloton is getting ready to try what company refers to as a “freemium” strategy, which will also be connected to the app. The business stated that it wants consumers to have access to Peloton’s classes from any location.
This would allow consumers to connect their smartphone through Bluetooth to a piece of exercise gear from a different manufacturer and then use that device to access Peloton’s content catalogue. even if it’s a product from a rival.
On Thursday’s conference call, McCarthy added, “We will be thrilled for customers to use our content on someone else’s hardware.” In the end, he added, this is another avenue for Peloton to keep adding members.
But this is still in its early phases, just like some of Peloton’s other concepts. Ed Yruma, a Piper Sandler analyst, said it’s unclear what would enable Peloton to resume sustained growth.
In a message to clients, he noted that Barry McCarthy had “immediately shored up the balance sheet…but a return to predictable growth remains TBD.”